Death of a Member: Lord Bilston
	 — 
	Announcement

Baroness D'Souza: My Lords, I regret to inform the House of the death of the noble Lord, Lord Bilston, on 25 February. On behalf of the House I extend our condolences to the noble Lord’s family and friends.

Sri Lanka
	 — 
	Question

Lord Naseby: To ask Her Majesty’s Government, further to the remarks by the Prime Minister on 16 November 2013 that the United Kingdom would allow Sri Lanka until March to begin credible investigations into allegations of war crimes before taking steps through the United Nations, why they are already working to influence the United Nations Human Rights Council to call for an international investigation.

Lord Naseby: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as chairman of the All-Party British-Sri Lanka Group.

Baroness Warsi: My Lords, the Prime Minister said that we will use our position on the UN Human Rights Council to call for an international investigation if credible domestic accountability processes have not begun properly by March. As with any resolution ahead of the March UNHRC, we are discussing the Sri Lanka resolution with members. The UN High Commissioner for Human Rights said this week that there were limited and piecemeal domestic steps towards accountability and recommended an international investigation.

Lord Naseby: I thank my noble friend but, as we are still in February, will she recognise that three things have happened recently? First, on war crimes, will the Foreign and Commonwealth Office study the evidence of the new Tamil film, “The Last Phase”? Secondly, will the Minister read Professor Moorcroft’s new book? Thirdly, on the book, Corrupted Journalism, there is now conclusive evidence that that film from Channel 4 features two key independent female witnesses, so alleged, who were in fact fully paid up members of the Tamil Tigers? Will my noble friend now publish the dispatches from our military attaché from Colombo, who witnessed the final stages of the war? Finally, will she encourage the work that South Africa and Sri Lanka are doing to construct a truth and reconciliation commission?

Baroness Warsi: My Lords, I note the further books and videos that have come to light in relation to these matters. Although my noble friend refers to progress that may have been made in the past two weeks, he will note that these matters have been ongoing for some five years. We have yet to see a meaningful, time-bound, independent, domestic-led political process with clear milestones in this matter. Of course, should a genuine and credible truth and reconciliation commission get under way, the UK would be prepared to support it.

Lord Bach: My Lords, the Opposition support the Government’s response to this question. We ask only this: as close as we are to March now, can the Minister confirm to the House that the Prime Minister will be true to his word on this—as I am sure he will be—and that the Government will continue to work closely with the United States Administration and others at the forthcoming session of the United Nations Human Rights Council in Geneva, to which she has already referred, in order that an independent international inquiry can be set up at the earliest possible time?

Baroness Warsi: I thank the noble Lord for his comments. He will be aware that we co-sponsored the resolutions in 2012 and 2013. On this resolution, which goes further than those resolutions and calls for an independent investigation, we are working with like-minded members.

Lord Avebury: My Lords, as the Minister has reminded us, five years have elapsed since the end of hostilities and no progress has been made towards setting up a credible independent investigation into the killing of an estimated 40,000 civilians during the final weeks of the civil war. The Prime Minister is to be warmly congratulated on taking a leading role in setting the scene for the resolution at the Human Rights Council next month. Do we have confidence that we have the votes to get the resolution through, and how will the inquiry be constituted?

Baroness Warsi: I thank my noble friend for his support. It would be wrong for me to predict at this stage how the voting will turn out. My right honourable friend the Minister, Hugo Swire, plans to be at the Human Rights Council high-level session on Monday. We have been working with a number of countries that have indicated strong support for the resolution, but it would be wrong for me to predict at this stage what the outcome of the vote will be. We continue to work incredibly hard to make sure that we get the resolution.

Lord Singh of Wimbledon: My Lords, I, too, congratulate the Government on its single-minded pursuit of an international inquiry into the allegations of human rights abuse in Sri Lanka. In view of the recent disclosures about Mrs Thatcher’s Government giving support in 1984 to the Indian Government in its ruthless suppression of Sikhs, will the present Government make amends by backing growing calls, in India, here and other parts of the world, for a similar UN-backed international inquiry into the Indian Government-backed
	massacre of Sikhs in 1984? It is not generally known in this House or outside that in only three days more Sikhs were killed in India than the total number of those who were killed or disappeared in the 17 years of General Pinochet’s rule.

Baroness Warsi: The noble Lord’s question goes slightly beyond the remit of this Question. I spent an hour and a half with the noble Lord and members of the community yesterday discussing exactly this issue and what follow-up work could be done post that report. I will, of course, write to him in due course as a follow-up to that discussion.

Lord Foulkes of Cumnock: I welcome what the Minister has said about the appalling human rights record in Sri Lanka. Is it not therefore rather strange that the President of Sri Lanka has been invited to participate in the ceremony in Glasgow Cathedral at the end of the Commonwealth Games to commemorate the start of the First World War? Would it not be wise to reconsider this invitation, as many organisations in Scotland are already asking?

Baroness Warsi: I am of the view that it is important for us maintain constructive engagement with the Government of Sri Lanka. I acknowledge that there has been some progress in relation to demining and resettlement, and that there has been some economic progress. I do not feel that completely disengaging from the Government is the right way in which to move them forward. I was not aware of that particular invitation but, at this stage, constructive engagement is the right way forward.

Lord Howell of Guildford: What consultations have we had with other Commonwealth Governments about the atrocities in Sri Lanka.

Baroness Warsi: I am not sure what specific consultations we have had with individual Commonwealth countries. It would be wrong for me to detail individually what discussions there have been. However, I can write to my noble friend and give him the details.

Succession to the Crown Act 2013
	 — 
	Question

Lord Lexden: To ask Her Majesty’s Government when the Succession to the Crown Act 2013 will be brought into effect.

Lord Wallace of Tankerness: My Lords, the Succession to the Crown Act will be commenced when each Commonwealth realm has taken all steps necessary to give the changes effect in its jurisdiction.

Lord Lexden: I thank my noble and learned friend, who is the master of the intricacies of this legislation. Can he reaffirm that it is absolutely essential that this modernising constitutional change is implemented—and implemented fully—in all 16 realms of which Her Majesty is head of state to ensure that the Crown descends in exactly the same way in all of them. Does my noble friend have any reason to anticipate that any of the realms might ultimately default on their obligations under the Perth agreement?

Lord Wallace of Tankerness: My Lords, I entirely agree with my noble friend that it is important that all 16 realms agree. Indeed, the intention is that when they all have put in place the necessary legislation there will be a simultaneous order to give effect in each of the realms. I make it clear that all realms that took the view that legislation is required have passed the requisite legislation, with the exception of Australia. As I informed your Lordships’ House at Third Reading, the Council of Australian Governments agreed that respective states would legislate first, requesting that the Commonwealth legislation be brought forward by the Canberra Government. To date, three states have enacted legislation; two have introduced legislation; and South Australia has yet to introduce legislation because it is in the middle of an election campaign.

The Earl of Clancarty: My Lords, although the new succession arrangements are to be welcomed, does the Minister not believe that it is wholly inconsistent not to similarly reform all hereditary titles so they are gender equal?

Lord Wallace of Tankerness: My Lords, this issue was raised during our debates. It was indicated that numerous issues would arise with regard to hereditary titles which did specifically arise with regard to the succession to the Crown—and indeed I think my noble friend Lord Lucas has a Private Member’s Bill which has had one day in Committee, where there was an opportunity to debate that issue.

Lord Marks of Henley-on-Thames: My Lords, with the birth of Prince George some of the urgency has gone out of the need to implement Section 1 of the Act. Does my noble friend agree that it is still important, and indeed urgent, to bring Section 2 into force to start to implement the dismantling of the discrimination against Roman Catholics that has been embedded in our constitution and therefore in those of Her Majesty’s other realms for well over 300 years?

Lord Wallace of Tankerness: My Lords, I entirely agree with my noble friend. He is right to say that the birth of Prince George has taken away the immediacy of that particular matter, but he is also right to point out that the Bill also allows someone in the line of succession to become sovereign to marry a Roman Catholic. It also removes the requirement of the heirs of George II to seek Her Majesty’s approval before they can marry—it will now be confined to first six in line to the throne.

Baroness Hayter of Kentish Town: My Lords, it is for exactly those reasons that the Opposition very much welcomed the Bill. If I understand it, it is only Australia for which we now wait. We just hope that before the Duke and Duchess of Cambridge get to Australia, it may have done the necessary. Although their first born is a son, were they to have a brace that come further, the order of succession may still be important for those subsequent children. Can the noble Lord perhaps use his good endeavours to see this speedily enacted?

Lord Wallace of Tankerness: My Lords, it is fair to say that all the state premiers in Australia have indicated their support for this measure, and that the Commonwealth Government of Australia stand ready to put in place the necessary legislation once each of the states has enacted its legislation.

Lord Lang of Monkton: My Lords, does the Minister agree that this Bill, which was always a sensitive measure, becomes more sensitive with every day that passes without agreement? When the Bill passed through this House it was emphasised to us that the Bill was urgent and unamendable because all the other realms had agreed to all the principles underlying it—all the more reason, therefore, to urge my noble friend to ensure that representations are made to ensure the speediest outcome in those realms that have not yet completed the process.

Lord Wallace of Tankerness: My Lords, as I indicated, there is only one realm that has still to legislate. Some realms took the view that, under their own laws, legislation was not required. I have indicated the position in Australia and have no reason to believe that anything other than good endeavours are being used to get the necessary legislation in place.

Travel to School: Rural Areas
	 — 
	Question

Lord Storey: To ask Her Majesty’s Government what support is given to young people living in rural areas to enable them to travel to school or college.

Baroness Northover: My Lords, all local authorities must provide free transport to children with special educational needs or a disability who are unable to walk to school, and to children aged five to 16 whose nearest suitable school is more than two miles away for children under eight and more than three miles for those aged eight to 16. There is additional support for children from lower-income families. Students over 16 can benefit from a range of discretionary or subsidised travel from the local authority and local operators and from the 16-19 Bursary Fund.

Lord Storey: My noble friend will be aware that young people have to stay in education or training to the age of 18 now. She will also be aware that 46% of local authorities have cut funding for bus transport. In rural areas, how does a young person who has to
	perhaps travel a bus journey of a couple of hours to their college, on an often infrequent service, afford these extra costs? Does she have any idea where this money could come from, as many of them now face crippling bills?

Baroness Northover: My Lords, it is clearly very important that young people attend college or school and we recognise that it can indeed be very costly for them to travel, especially in rural areas. Local authorities set out annually the arrangements for transport in their area. Typically, that is for young people to pay an annual fee—a fixed amount. I have a number of details of what is provided. It can be especially good value for those who live in rural areas and for particularly disadvantaged young people, as I mentioned, there is the bursary fund.

Lord Brooke of Alverthorpe: My Lords, is the noble Baroness aware that there are similar problems in cities, particularly for the young unemployed, who often have great difficulties finding the money to get to interviews that they have been required to attend to ensure they get their benefits? Given there is a possibility that benefits may be withdrawn from those over 18, is it not time to have a complete review of the way in which assistance with travel to work, to interviews, to college or to schools is given? There are many people in the country who are in receipt of benefits—I am thinking of people such as myself—who, quite frankly, do not need assistance with travel on public transport. We could have a fairer or more equitable distribution of the money, particularly for those who are unemployed or going to school or college.

Baroness Northover: We keep this whole area under close review. New guidance has just been issued to local authorities so that they work out with enormous care what is required in their area and assess the needs that the noble Lord has pointed to. He obviously points to an important area.

The Lord Bishop of St Albans: My Lords, the Church of England is deeply involved with hundreds of tiny rural schools in sparsely populated areas and is acutely aware of some of the financial difficulties that they face. When such a school has to close, what advice do Her Majesty’s Government give on the educational, financial and environmental issues—to do with sustainability—of transporting these pupils, sometimes very long distances, to the next nearest school?

Baroness Northover: I will write to the right reverend Prelate with details about what happens when these schools are closed. There is a special premium for rural schools of the type that he describes, which have fewer pupils than you might find elsewhere, but I will write with further details.

Baroness Hughes of Stretford: My Lords, does the Minister accept that since the Government abolished the education maintenance allowance and the adult learning grant, the problems young people in the 16 to 19 age group face in getting to college,
	training and apprenticeships have become much worse? As she said, the role of the local authority in supporting travel costs in particular is discretionary. Although some fund significant subsidies, others do very little. In fact, in the past few weeks alone, Cumbria, North Yorkshire and Lancashire—all with extensive rural areas—have announced further cuts in their travel subsidies for young people. Why can the Government not ensure that all local authorities provide at least a minimum level of support for travel costs for young people, especially in rural areas, where costs are much higher, but also in urban areas, where there are also problems?

Baroness Northover: I do not accept what the noble Baroness said about the education maintenance allowance because the way that it is organised now focuses on the young people who are most at need and provides them with more generous support than was the case before. Therefore, a yearly bursary of up to £1,200 is available to young people from specific vulnerable groups. A number of these young people—roughly half—do indeed receive travel passes or tickets. The councils she mentioned still offer special discounts to students and young people even though in some instances they have increased the charges that they are making.

Lord Bradshaw: My Lords, I wonder whether the Minister might look at the supply side rather than the demand side of this equation. There are very strict rules about the operation of part-time buses and the collection of fares—all sorts of terrible regulations—which make it extremely difficult for communities to organise bus services to meet the needs which are quite obvious in rural areas.

Baroness Northover: My noble friend makes a good point. However, I would point him to the local authority guidance, which has just been reissued, because one of the things that local authorities need to do is to analyse what provision is there, what is needed and where the deficits might be.

Baroness Farrington of Ribbleton: My Lords, I declare an interest as a former member of Lancashire County Council. The noble Lord, Lord Greaves, is in the Chamber: we introduced the first education maintenance allowances. Is the noble Baroness aware that I heard with some scepticism her reply that bursaries have replaced EMAs and that EMAs were too generous to young people who did not need it—none of which is true—and is she aware that in Lancashire the staying-on rate in areas such as Skelmersdale at the beginning of the 1980s shot up by 40% and those young people had to attend regularly and work hard?

Baroness Northover: The noble Baroness may have misunderstood or misheard what I said. What I emphasised was that the bursaries that are now given are more generous. They are targeted at those who are most vulnerable. She may very well feel that the others who do not now get the EMA may have a need that she identifies, but I am pointing out to her that the
	bursary is better targeted in that it is focusing on the most vulnerable and it is providing more to them, which I am sure noble Lords would support.

Baroness Perry of Southwark: Following on from the right reverend Prelate’s intervention, does my noble friend agree that rather than closing rural schools it might sometimes make sense to bus the children from an overcrowded city school and take them out to the pleasant air of a country school so that they could enjoy the very good teaching that one often finds in small rural schools?

Baroness Northover: That is a novel and interesting idea and I should think the children would welcome that. But as I said earlier, we have special funding to try to keep open some of these rural schools. In doing my research for this, one thing that I was encouraged by was the fact that 48% of primary schoolchildren in Britain walk to school, and I think that is excellent.

Baroness Maddock: My Lords, I wonder whether my noble friend, when looking at the review she talked about, could look at what has happened in north Northumberland. When the Liberal Democrats took over the council, they instigated free transport for those aged over 16. We have a very low level of take-up of further and higher education in this part of the country and I hope she will look at this because it increased the numbers of students who took up further education. I hope that, like me, she is rather concerned that now the council is being run by Labour, it is proposing to do away with this.

Baroness Northover: I will indeed take that example back. As I said at the beginning, it is extremely important to keep young people in education and training. Having just come back from India, I am well aware that we are part of a global situation, and we have to ensure that our children are as best educated and skilled as possible.

NHS: General Practitioners
	 — 
	Question

Lord Hunt of Kings Heath: To ask Her Majesty’s Government what action they are taking to ensure that patients can get an appointment with their general practitioner.

Lord Hunt of Kings Heath: My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and refer noble Lords to my health interests in the register.

Earl Howe: My Lords, the GP patient survey showed that the vast majority of patients are satisfied with their GP and rated their experience of making an appointment as good. To improve access further we have announced a £50 million fund to support GP practices in improving services and access
	for their patients. We have also reduced the quality and outcomes framework, the QOF, by more than a third. This will free up space for GPs to provide more personalised care. In addition, by March 2015, all practices will have the facilities to offer online appointment booking and repeat prescription services, increasing ease of access to GP services.

Lord Hunt of Kings Heath: My Lords, the noble Earl will know that the analysis by the Royal College of General Practitioners at the weekend showed, according to its work, that 10% of patients were finding it difficult to find an appointment with their general practitioner. Can the noble Earl tell the House what the Government are going to do about that? Does he agree that as hospitals are now moving to full seven-day working, the accessibility of primary care must be improved?

Earl Howe: I do agree with the noble Lord’s final comment in particular. We know that GPs are hard pressed. GP consultation rates have risen by 40% since 1995. We therefore need to take several steps to address that. One is in the medium to longer term: we need more GPs, and we have tasked Health Education England to ensure that at least 50% of medical students move to the GP specialty. In the immediate term, there are the measures that I mentioned relating to the GP contract and the £50 million fund, both of which are designed to make the use of GPs’ time a lot more productive than it is at present.

Lord Forsyth of Drumlean: Can my noble friend tell me whether the previous Labour Government’s negotiation of the GP contract, which resulted in GPs being less available but being considerably better paid, may have something to do with the difficulties that we are now experiencing?

Earl Howe: My Lords, the resources that have been devoted to GP practice and primary care have gone up by a third in real terms since 2002. A lot of that was due to the revised GP contract. Unfortunately, that contract also allowed GP practices to opt out of out-of-hours care which, over time, has meant that patients have found it more difficult to access their GPs at evenings and weekends.

Baroness Meacher: My Lords, very much respecting the point about out-of-hours care, I am aware of a number of practices that are finding it extremely difficult now to recruit GPs. Will the Minister undertake a review of the impact of the now falling GP pay on recruitment and therefore on the capacity of patients to obtain appointments?

Earl Howe: The noble Baroness raises a very important issue. I can tell her that the department and Health Education England have commissioned an in-depth review of the GP workforce looking towards a more sustainable solution for the longer term. The final report will be published in the summer. The preliminary report suggests that increasing the supply of practice nurses and greater collaboration with specialists may help to improve effective workforce supply.

Baroness Wall of New Barnet: I follow on from the question of my noble friend Lord Hunt and the Minister’s acknowledgement that the effectiveness of primary care needs to be improved. I agree with what the Minister said about the improvement in some GP services, but still many individuals come to A&E at all times, whether the surgery is open or otherwise, which makes things very difficult. For instance, Barnet Hospital received 117 ambulances yesterday, which made it extremely difficult to deal with people who had walked in, who probably could have had their treatment somewhere else.

Earl Howe: The noble Baroness is quite right. The NHS is seeing an extra 1 million patients in A&E compared to three years ago. Despite the additional workload, it is generally coping very well although we know that departments are under strain. This is not just about A&E, as the noble Baroness will be aware, but about how the NHS works as a whole: how it works with other areas, such as social care, and how it deals with an ageing population and more people with long-term conditions. Dealing with all that means looking at the underlying causes, and that work is going on at the moment in NHS England.

Lord McColl of Dulwich: Does the Minister agree that it was very unfortunate indeed that certain politicians, who shall remain nameless, said to the general practitioners: “We know what you’re doing. You should have been working but you were on the golf course and, from now on, we’re going to pay you only for what you do”? The general practitioners thought this was a rather good idea, because it resulted in a substantial pay rise.

Earl Howe: My Lords, there is no doubt that the general practitioners bit the Government of the day’s hand off, 10 years ago, and they had every reason to do so with the money that was being offered to them. However, while a feature of that contract was the quality and outcomes framework, which was a good idea in itself, it has resulted in a lot of box-ticking for GPs and it is that element which we have drastically reduced in the contract for next year. That will be helpful in freeing up GPs’ time.

Baroness Finlay of Llandaff: My Lords—

Lord Grocott: My Lords—

Lord Hill of Oareford: My Lords, it is the turn of the Labour Party.

Lord Grocott: As the Minister was tempted, perhaps a little unwisely, to go down memory lane by way of explaining the current circumstances in the health service, perhaps I could tempt him to go a little further back down it by reminding him that it was the Labour Party which built the National Health Service in the teeth of Tory opposition. If you want to have the health service maintained in future, the secret is to get a Labour Government.

Earl Howe: My Lords, the current Government have maintained funding for the National Health Service; that is contrary to the Labour Party manifesto of 2010, which promised to cut funding to the National Health Service.

Baroness Manzoor: My Lords, I am fortunate that I am registered with an excellent GP practice which is well run, accessible and innovative. Over the last 30 years, I have seen significant improvements, and not only in the range of services that the practice provides. Who is responsible for ensuring that GPs are learning from other GPs the excellent practices which are available across the country?

Earl Howe: My Lords, there is a variety of means to ensure that GPs have continuous professional development. It is partly up to Health Education England to see that that happens and that there is peer-to-peer learning and review. Clinical commissioning groups also have an interest in ensuring that the quality of service provided by every member practice is of an equally high standard.

Public Bodies (Merger of the Director of Public Prosecutions and the Director of Revenue and Customs Prosecutions) Order 2014
	 — 
	Motion to Approve

Moved by Lord Faulks
	That the draft order laid before the House on 16 December 2013 be approved.
	Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 27th Report from the Secondary Legislation Scrutiny Committee.Considered in Grand Committee on 24 February.
	Motion agreed.

Electoral Registration and Administration Act 2013 (Transitional Provisions) (Amendment) Order 2014

Electoral Registration (Disclosure of Electoral Registers) (Amendment) Regulations 2014
	 — 
	Motions to Approve

Moved by Lord Wallace of Saltaire
	That the draft order and regulations laid before the House on 30 January and 3 February be approved.
	Relevant document: 21st Report from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 24 February.
	Motions agreed.

Industrial Training Levy (Engineering Construction Industry Training Board) Order 2014

National Minimum Wage (Amendment) Regulations 2014

National Minimum Wage (Variation of Financial Penalty) Regulations 2014
	 — 
	Motions to Approve

Moved by Viscount Younger of Leckie
	That the draft order and regulations laid before the House on 18 December 2013 and 14 January be approved.
	Relevant document: 19th Report from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 24 February.
	Motions agreed.

Pensions Bill
	 — 
	Report (2nd Day)
	 — 
	3.39 pm

Clause 33: Automatic transfer of pension benefits etc
	Amendment 23
	 Moved by Baroness Sherlock
	23: Clause 33, page 16, line 37, leave out “of which the person is an active member”

Baroness Sherlock: My Lords, I remind the House of my registered interest as the senior independent director of the Financial Ombudsman Service. Amendment 23 stands in my name and in the names of my noble friends Lord Hutton and Lady Drake. In moving Amendment 23, I shall speak also to the other amendments in this group. These amendments may look lengthy but their aim is remarkably precise.
	Amendment 23 is very simple. It would retain the power of the Secretary of State to put into place the consolidation of small pots but would remove the part of the sentence that limits this to the “pot follows member” form of consolidation. This sounds technical but really it is not; it is about fairness. As the state is enrolling people into a pension scheme without their explicit consent, surely it has a very high duty of care to them to ensure that the money they are putting aside is not lost through excessive charges or poor investment choices driven by inadequate governance.
	“Pot follows member”, or PFM in the jargon, is the Government’s solution to a problem. I shall comment on the problem, demonstrate why I believe that the Government’s proposed solution is flawed and propose an alternative. The Government believe that action is needed to address the large number of dormant small pension pots that arise under auto-enrolment when employees move to new jobs, which they do on average
	11 times in their career. We on these Benches agree that action is needed but we do not agree with the form of action proposed. The impact assessment confirms that the Government considered two default transfer options: first, pot follows member, where the small pension pot would follow the member to their new employer’s pension scheme; secondly, an aggregator scheme, where small pension pots would be transferred to an aggregator, such as NEST. The Government had two options but I believe that they chose the wrong one. However, I do not propose to substitute my judgment for that of the Government; rather, this amendment would simply increase the choice available to them. As it stands, Clause 32 allows only for pot follows member. Our amendments would enable the possibility of the Government using an alternative default aggregator model without the need for new primary legislation.
	I would like to set out the context. The core issues of trust and confidence are still centre stage in getting people to start, and continue, saving for their retirement. This Bill, and auto-enrolment itself, should give people the confidence they need to save for their old age, but how can we demand that people save if they do not trust the savings vehicles and do not trust the pensions market as offering value for money? The pensions market is not a typical retail market where the consumer chooses the product. Under auto-enrolment, the consumer does not choose the product; the employer does. The only choice for the employee is either to stay in or to opt out and lose the employer’s contribution to their pension. There are also many intermediaries in the pension supply chain. Pensions are complex products, lacking transparency. While many large employers may have the resources to pay for good product advice or assessment of fund performance, SMEs may not. The demand side is weak.
	The pensions market has some very big players that offer pension fund products but also asset management and annuities. The OFT says that the four largest players have 61% of the members, 68% of the assets and 76% of the schemes. The results are predictable. The combination of a concentrated supply side and a weak demand side is bad for savers and allows the conflicts between the two to go unresolved, against the interests of savers. These characteristics of the pensions market combine, as the OFT’s excellent report says, to make the market dysfunctional. The OFT concluded that,
	“competition cannot be relied upon to ensure value for money for savers in the DC workplace pensions market”.
	Later amendments deal with other criticisms raised by the OFT, but Amendment 23 and its associated amendments deal specifically with the challenges of small pension pots created by auto-enrolment. The Government themselves estimate that 50 million pension pots will be created by auto-enrolment by 2050, 12 million of them under £2,000. Already one person in six has lost track of their pension pots, and there are 1 million unclaimed pension pots with less than £3,000 in them. The Government estimate that pot follows member will result in 27% of the workforce having more than five pension pots. The evidence is clear that a default consolidation mechanism is needed for those people who do not make an active choice to transfer their
	pension at the point of movement. The point at issue is how best to do this. The Government have chosen pot follows member but, given the state of the market, so well captured in the OFT report, pot follows member carries some really significant risks. There are major challenges associated with setting up and administering it. There have also been some significant criticisms of the pot follows member model of consolidation, as my noble friend Lady Drake explained very cogently at Second Reading. The National Association of Pension Funds concluded that the pot follows member system,
	“could harm members’ savings and would be disproportionately complex for the industry to implement. We estimate that savers could lose a sizeable proportion of their savings if they move from a good scheme, with low charges and good governance, into a bad scheme with high charges and poor governance. This approach also exposes individuals’ entire savings to market risk when they transfer”.
	We need to find a solution that helps savers but does not expose them to unnecessary risks. I should be very grateful if the Minister would respond in detail to those criticisms of pot follows member when he replies today.
	I also invite him to tell the House which organisations in the field of pensions are backing pot follows member as a solution to this problem. I believe that the Association of British Insurers is, but will he list the other organisations for us today? Will he also tell us why he does not seem to have given any weight to consumer opinion? The DWP’s survey showed that 61% of respondents would choose an aggregator. That is the alternative. By contrast, the National Association of Pension Funds, the Cass Pensions Institute, Which?, the CBI, the EEF, Age UK, the TUC and the Centre for Policy Studies all prefer an aggregator model of consolidating pension funds. That is a pretty board church of employers, staff representatives, consumer interest groups, academics and independent experts. They all believe that aggregators will meet the needs of savers better and, I suggest, the needs of employers.
	There are different ways to pursue aggregators. We know that the NEST model works well. Cass and the NAPF have other ideas about ways to do it. I have carefully not sought to prescribe an aggregator in detail in this amendment, although I think we should take the opportunity to hardwire into aggregators features that will inspire trust and confidence and reassure savers who are understandably sceptical of the pensions industry, including the certification of aggregators and a public service obligation which would require them to accept automatic transfers in from pension schemes. The NAPF advocates a robust regulatory framework for aggregators and suggests that quality standards could be set so high that it is likely that only a small number of aggregators would be accredited.
	We all want the consolidation of small pension pots and we all want an automatic transfer system. Our preference is for an aggregator model, but all we are asking for in our amendments is to allow further work to be done and for the possibility of aggregators to be the choice rather than what the Government have done, which is to restrict the choice only to pot follows member. If our amendment were accepted, the Government would have the opportunity for further investigation without the need for additional primary legislation.
	I think many in this field suspect that the Pensions Minister came to a fork in the road and chose the wrong fork. I understand that. I have done it myself in my time. I suspect the Minister realises now that he made a mistake, but he may just feel that he is too far down that road to turn back. We have the chance to build a bridge back to the main road where he can reflect further on the choices available to him. If he then decides he wants to stay with pot follows member, he may do so, but let us give him the chance to think again, not for our sake, but for the sake of all those workers who are doing the right thing and, despite cost of living pressures, are managing to put aside hard-earned money towards the cost of their retirement. I beg to move.

Baroness Drake: My Lords, I speak to Amendment 23 and the associated amendments to Schedule 17. I declare my interests as a trustee of both the Santander and Telefónica pension schemes, and as a member of the NAPF pension quality mark board.
	It is clear that the Government are right that a solution is needed for millions of dormant small pots arising under auto-enrolment because of the large number of workplace schemes and the frequency with which workers change employers. The Government are right that neither scheme members nor providers benefit from workers leaving behind small pots as they move from job to job. The Bill gives the Secretary of State the power to make regulations to transfer automatically small pots to form, and keep track of, bigger, more efficient pots. The contentious issue is what the default transfer solution should be.
	The Government, as my noble friend has said, has chosen pot follows member, whereby a small pension pot automatically follows a member to their new employer’s pension scheme, rather than the alternative of small pots being transferred to an aggregator scheme which consolidates all the small pots accumulated by an individual each time they change their employer. The Association of British Insurers supports this view but, as my noble friend has pointed out, many others—the Confederation of British Industry, the NAPF, the Cass Pensions Institute, Which?, EEF, Age UK, the TUC, the centre for pension studies and others—believe that pot follows member has a number of inherent risks and weaknesses.
	The amendment retains the power of the Secretary of State to make regulations to transfer small pots automatically, but not the requirement that this must be through PFM. It allows time for further consideration by the Government without excluding any particular solution, as the consequences of getting this wrong are absolutely huge. PFM cannot be implemented without raising quality standards, or the Government risk transferring the savings of millions of ordinary people into many thousands of different schemes over which they have very little quality control.
	Confidence that quality standards would be raised sufficiently has also been dented by the decision to defer introducing a charges cap, increasing the risk of saver detriment. PFM also increases the risks of charges and transaction costs being incurred on the whole pension pot as it moves with each job change, rather than on the incremental amount saved with the previous employers.
	Savings would be switched out of investment assets into cash, then reinvested with every job change, exposing workers to repeated transaction costs, extra investment risk and the risk of being switched out of low-risk lifestyle funds as they approach retirement. The more frequent the change of job, the greater the risks—risks that an aggregator could reduce.
	The impact assessment acknowledges that individuals may be better or worse off, depending on the charges or the performance of the investment fund into the scheme into which they are transferred. However, the DWP expects,
	“the gains and losses from differences between scheme charges and investment performance to cancel out on average”.
	However, there is no consolation for individuals if their higher charges on transfer are off-set by another’s lower charges. An automatic transfer solution, using a limited number of aggregators, can require them to deliver a low-charge, high-quality standard, so mitigating the risk of saver detriment overall on transfer.
	All qualifying automatic enrolment schemes should meet minimum standards, but regulating for differences in quality between schemes is impossible. There will always be a wide range between minimum standards and best practice. PFM fails to work for everyone, as it only transfers a pension pot into a workplace scheme of which an individual is an active member. It fails those who leave the workforce or become self-employed, as they are no longer active in an employer’s scheme. Their small pots are left to flounder. Employers may even default their small pot into a poorer-quality personal pension because they simply do not allow ex-employees to remain in their existing scheme. By comparison, an aggregator does not require a worker to be an active member, so it can cater for more people. PFM increases administrative burdens on employers, obliging every workplace scheme to be capable of communicating with every other scheme. Aggregators reduce this burden as there would be only a few schemes in which to transfer. Auto-enrolment was intended to carry a lighter regulatory burden on employers, especially SMEs. However, PFM rows in the opposite direction.
	DWP modelling suggests that for any pot size, the aggregator will achieve slightly less consolidation with PFM, and that irrespective of pot size limit, the aggregator model would achieve at best only half of the net present value of the economic benefit of the PFM approach. DWP modelled pot follows member and aggregator over a range of pot size transfer limits, initially setting a £2,000 pot limit for aggregators while modelling PFM up to £20,000. After protests, it issued an ad hoc release, modelling the limit for aggregators up to £20,000. The Government argue that an aggregator solution would require transfers to be restricted to pots of £2,000 or less rather than the £10,000 intended for pot follows member, a figure suggested by providers to ensure that aggregators did not dominate the market and upset competition. The whole analysis underpinning auto-enrolment, the building of NEST and the need to regulate value for money is based on massive market failure and the inability to rely on fair competition. A hypothesis that dominant aggregators might emerge is not a valid argument against aggregation at higher pot levels.
	The assertion that the aggregator model would achieve only half of the net present value of the PFM approach assumes a one-off cost of £105 to transfer a pot and a PFM, and a saving of £20 each year from not having to administer annually a transferred pot. However, if that saving and assumption, an uncertainty in itself, turns out to be lower, the economic advantage of PFM also falls.
	The DWP assumes that an aggregator cannot hold live pots, but if employers were also allowed to use a good-quality aggregator as their scheme, it could provide pension portability to many members, removing the need for transfers at all when they change jobs, and the costs that would go with it. The Government impact assessment accepts that it would be more efficient to use existing schemes as aggregators because,
	“active members would be saving in the scheme that also holds their dormant pots”,
	but they fail to reflect this concession in their own modelling.
	As my noble friend said, there are significant delivery challenges with PFM. The Government believe that in the long term PFM will deliver low charges for savers due to efficiency savings made by the industry having to manage fewer small pots. However, those savings are by no means assured. The impact assessment acknowledges that,
	“there is a risk that some providers will not experience the resource savings projected”,
	that,
	“trying to estimate the cost of administrative processes many years ahead is fraught with difficulties and is a key uncertainty over the estimated cost savings”,
	and that the,
	“wide range of estimates provided … in discussions with stakeholders suggests there may be some genuine variation across providers”.
	To be successful and to be delivered, PFM requires pan-industry collaboration. There are significant technical challenges for it to be delivered. The DWP is working with providers to find an industry-led IT solution. However, what happens if the direction of travel gets too tough and they disagree with the Government or with each other—not an infrequent occurrence? Do we get another deferral?
	The unresolved weaknesses in the pot-follows-member solution are apparent in the inherent risks, the uncertainties in key assumptions and the delivery challenges. The transfer solution chosen by the Government must give greater confidence to mitigating saver detriment. This amendment reflects the very real concerns that not only I but many others have expressed, but it retains the power of the Secretary of State to make regulations automatically to transfer small pots while allowing him to give more time to detailed consideration on the model of the solution.

Lord Turner of Ecchinswell: My Lords, we have before us this afternoon a series of interconnected issues —the one of aggregation versus pot follows members, the issue of charge caps and the issue of transparency of charges. They are all related, because they are all to do with the absolute importance of getting value for money for pensioners. When we did the work of the Pensions Commission some eight years ago, the
	commissioners had two main concerns about the existing system of private pension provision. The first was a low level of participation and savings, and the second was very poor value for money—the phenomenon of many people, particularly those working for small and medium-sized enterprises and on a lower income, who paid fees such that by the time they came to retirement 25%, 30% or even 40% of their entire pension pot had disappeared in the fees charged to them.
	Auto-enrolment addresses the issue of participation and, to a degree, that of cost, because it has removed some of the selling costs involved. It is essential to address the other issues driving costs, of which one is the proliferation of pots and the administration cost that comes with it. Therefore, it is good that there is a strong consensus that we need some form of policy intervention to arrive at a better consolidation of pots. I would accept that it could be done either way—by pot follows member or by aggregators—but I have not been convinced by the arguments that pot follows member is the superior route.
	Part of the logic originally put forward, as the noble Baroness, Lady Drake, has said, was I think completely false—the idea that, if we had aggregation, we had to limit the transfer of the pots to only £2,000 versus a much higher transfer amount that would be allowed for pot follows members. There was absolutely no logic to that assumption. Indeed, I stress the point that there is no logic in any limit on transfers at all. The logic put forward by the impact assessment is that we need to avoid too much concentration of provision in this industry, so that a cap on transfers makes sure that the business is shared around in a fair fashion for lots of different providers. But it is very clear from the OFT work that this is not a market in which market competition works well, and the aim is not to have competition for its own sake; having a large number of competitors for its own sake is not an end. Competition is a good thing if it produces better value for consumers. If it is the case that aggregation into a relatively small number of aggregators will result in lower costs to savers, that should be our preferred route—one that is best for customers, not one that tries to spread the business around as a form of fairness to those already providers in the market. As a very thoughtful paper produced by the Centre for Policy Studies put it:
	“The proposed pot size limit on transfers serves no consumer purpose: it should be scrapped”.
	If we accept the logic that we should be allowing full transfers of whatever amount people have to enable us to get to what the Secretary of State called one big fat pot, that highlights one of the real dangers in pot follows member and makes it even greater—the danger that people can see their funds transferred into a higher charge scheme. Suppose someone has been in a NEST-administered scheme with one employer, paying 50 basis points—0.5%—for a default fund investment and then changes jobs and moves to a new employer who has chosen a scheme with a higher charge rate—perhaps 75 or 100 basis points. They will have originally made a decision to accept auto-enrolment on the basis of one set of charges but now we decide, in an Act of Parliament, to transfer them to somewhere where they will face higher charges in a way which, as I highlighted
	earlier, has not just a marginal but a huge effect on the amount of money they pay in charges and, therefore, on their pension for the whole of their retirement.
	If we were committed to having in place very robust rules on the charge cap—this is why the issues before us this afternoon are somewhat linked—so that, for instance, we were confident that, if you had pot follows member, you would be going from a 50 basis point fund in NEST to a 50 basis point fund in where you had been transferred to, I accept that the decision might be a bit more balanced, although I think the other arguments that the noble Baroness, Lady Drake, put forward would still apply. However, we do not have that robust commitment in relation to the principle of a charge cap, let alone that it should be set at something like 0.5%. In the absence of that, we should not preclude the option of aggregation, which may well prove a more effective route to get to the low costs that we require above all for savers.

Lord Hutton of Furness: My Lords, I am happy to have the opportunity to make a brief contribution to the debate on this amendment. It is the first time that I have put my name to an amendment in this House. I have done so because I believe that this is a very important point in the progress of the Bill. Clause 33 is to be welcomed in principle. It is the first time that a Government have addressed the problem of the large number of small pension pots that are out there. We need a solution to that problem, so I absolutely welcome the Government’s attention to this policy. We all know that one of the by-products of auto-enrolment —it is a very good policy which clearly at this early stage is encouraging more people to save—is that we will see many more of these small pots created. It is certainly not in the interests of pension savers for these small pots simply to stay where they are.
	I do not want to repeat the very able arguments put by my noble friend on the Front Bench, by my noble friend Lady Drake and, indeed, by my noble friend Lord Turner, but I will make a slightly different point. Your Lordships’ House has heard the technical arguments, which are complicated and difficult to digest. I come at this debate from a slightly different angle, having been a former Pensions Minister. There are many other former Ministers in this House and I hope that the international fraternity of former Ministers, who are represented so well in this House, will understand this point. There comes a moment in the gestation of any policy when it is necessary to take a step back to be sure about it and to satisfy yourself that the policy is the right one—particularly given the fact that, as my noble friend Lord Turner said, if we do not amend the Bill, we will make the transfer of these pension pots compulsory and run the risk that people could lose out. That is a real hazard of which we need to be aware. In my experience, the best time to take that pause is before you take that step; you should not to do so once you are committed to it, perhaps irrevocably, and when some people will lose out as a result.
	I have been in this House and another place long enough to know the difference between a destructive amendment and a helpful one. I definitely would not have put my name to this amendment if I thought that
	it was in any way a torpedo below the waterline of the Government’s policy. It gives the Government the opportunity to take stock of the situation. There are serious concerns about the impact assessment undertaken to support the policy. Many others have spoken of their concerns about the impact assessment. It would be a misstep on the part of this House to take a decision on the basis of what we have been presented with. The impact assessment is simply not reliable enough.
	All the amendment does is invite the Government to take another look at this policy. It does not rule out pot following member, if that is what the Government are committed to doing; it simply gives them the opportunity, without coming back to this place, to follow the path of aggregation. Many of us believe that the opportunities of aggregation have not been fairly and fully explored by the Government. We should look again at the issue of aggregation, but I do not want to mandate that as a policy for the Government. That would not be right, but it would be absolutely sensible and in the interests of millions of pension savers for us, at this very late hour, to take a step back—not to rule out the possibility that this might be the eventual path that we follow, but to allow us, and Ministers in particular, to take another look at the benefits of aggregation. I genuinely think that that would be the right course of action for Ministers to take at this moment, and I hope that the House agrees with that.

Lord Stoneham of Droxford: My Lords, it is a good thing that in this debate no one disputes the need to consolidate pension pots to ensure that savers keep track of their pension savings and get the best return with the lowest charges. Nor does anyone dispute that inertia is an accepted principle to encourage savings through auto-enrolment, and should now be followed to encourage consolidation of pension pots. Let us remind ourselves that this measure covers people who do not want to opt to do things according to their own decision. It deals with people who are not at the moment making a decision as to what to do with their pension pots and it runs the risk of leaving them stranded.
	We have to make a choice between two options—pot follows member to their new employer or the aggregator system. Let us also remember that this amendment merely delays a decision in order to allow more consideration. I do not want to make a political point, but this issue should have been addressed earlier and the problem is mounting. We know that in Australia, for example, as a result of changes made 20 years ago, there are 30 million stranded pension pots. That demonstrates that the sooner we get a consolidation process in place the better.
	I have spent the past couple of weeks since Committee looking at the alternatives. One thing I think that we have to challenge is the ongoing closed nature of the pension sector, which relies on passive, uninformed and, sadly, often uninterested consumers, while the providers have a self-interest in prolonging obscurity and lack of information, leading to higher charges and lower performance.
	The aggregator model basically assumes that competition and greater accountability cannot open up this marketplace. However, there is no clear proposition of what the aggregator model will actually be like. Will
	it rely on a small number of large schemes dominating the market, or will there be an unlimited aggregator model in which any scheme that meets certain criteria on charges and governance can act as an aggregator? There is no clarity about who will be responsible for selecting the aggregator scheme for the individual’s pot as it is to be transferred on moving jobs. Would it be done by the individual’s old employer, the old scheme, the new employer, the new scheme or by some form of automatic allocation?
	The aggregator model is promoted as a safe haven for accumulated pension savings, with the implication that higher governance standards and restricted charging will offer greater security than pot follows member. I have to say that there is a difference in outlook on the process of reform between the two sides of the House on this issue. The aggregator model, by breaking the link with the employer’s current live scheme, will make it more difficult for individuals to understand where their money is and to engage with their retirement savings. An aggregator model will be a further distortion of competition in the pensions sector. We know that the sector is overconcentrated at the moment; we will merely be making it worse. Size also promotes complacency and inefficiency, and could increase risk where competition is weaker. It does not seem logical to attack regulated cartels in the energy and banking sectors but promote them in the pensions sector. The aggregator model will exploit inertia, too. Once the aggregator has the worker’s first pot, it is likely to receive subsequent pots because the consumer will make no active choice and there will be no incentive to innovate or improve performance.
	In the member follows pot proposal we are providing two countervailing forces. There will be greater transparency for the consumer, who will remain close to their pot and will have a greater opportunity to understand the pension provision they are making, as well as its return and its charges. The employer will also be motivated to make the best provision for their staff in order to motivate them and keep them. The pot follows member proposal would be a more natural evolution of the market. An aggregator would be an irreversible sea change, as so much money would be concentrated in aggregator schemes that you would not be able to change the consolidation model without breaking up the aggregators.
	Are we also saying that we could accept two standards of regulation: one for the aggregators and minimum standards for the rest? I do not think that that would be acceptable. We need good, not minimum, standards throughout the sector, and employers and employees would be more interested in achieving this if they were both directly involved. Pot follows member is simpler to understand for the consumer, and surveys suggest that it is what the consumer wants. There is a dispute about the questions being asked but I think that simpler is always better than complexity.
	Of course, we still need to see the regulation standards that will be set. We will need an economic and practical transfer system. We will need to cope with consumers leaving employment and going off into self-employment. We also need to deal with the current backlog of
	stranded pots. However, above all, we need to move forward on this before the problem gets greater and the advances of auto-enrolment are undermined by a vast number of lost and unaccountable pension pots.

Lord Flight: My Lords, the noble Lord, Lord Stoneham, has made some very good arguments in favour of pot follows member, but I want to start—and I want to be sure that there is absolute clarity here—on the question of individuals having a choice about where they consolidate their pension savings. We are talking about the default option in discussing pot follows member versus aggregator and no more than that. When an individual joins a company scheme on moving jobs, it is quite important that he is able to choose where to consolidate his pension.
	In terms of the default option, first, I have always felt strongly that the argument against the aggregator arrangements is: who chooses? That point was made by the noble Lord, Lord Stoneham. I cannot really see who is in an appropriate position to choose if we go to aggregators. Secondly, aside from the cartel point, the larger the amounts of money, the more difficult it becomes to manage that money. A whole lot of potential investments almost get ruled out because the market capitalisation of firms is not sufficiently large. Therefore, I do not see there being a huge virtue in having a limited number of colossal managers. I might add that NEST’s charges do not seem to be particularly competitive, particularly for the earlier years of membership.
	To a certain extent, I believe that there are arguments for keeping all doors open but I do not feel that the case for the aggregator has by any means been won. On balance, I think that pot follows member is a better solution, essentially for the reasons given by the noble Lord, Lord Stoneham, although I shall not repeat them.

Lord German: My Lords, I shall try not to repeat the remarks of my noble friends Lord Stoneham or Lord Flight, but my noble friend Lord Flight makes a very important point about the default choice which is before people. That is what this amendment must seek to address but I think that it fails to do so. Noble Lords will recognise that what we have before us is a debate about either pot follows member or the aggregator; it is not a debate about choice. Except for the noble Lord, Lord Turner, who said that under certain conditions, the balance might be right, it is clear that those on the Labour Benches want to see an aggregator policy.
	I accept that that is the purpose behind the amendment but that is why it is important to examine these issues. I shall say a few words about why we must have some form of automatic transfers of pensions. The main beneficiaries of automatic transfers are those people who, for the first time, are saving for their retirement, following automatic enrolment into a workplace pension, and then move jobs, leaving behind a small pension pot. A system of automatic transfers is necessary to stop the proliferation of small pots that will ensue as a by-product of automatic enrolment. The average worker in this country will have 11 jobs in the course of their working life. Automatic enrolment by 2018 will probably have 9 million people within it, and maybe even 10 million by 2020 who are new savers, saving more for their
	retirement than their work-based pensions. These are people who are being automatically enrolled. If we took no action the projection is that there will be around 50 million dormant workplace defined contribution pension pots within the system by 2050.
	A successful system must focus on the interests of the member, allowing them to consolidate their pension savings. I notice that the noble Lord, Lord Monks, is not in his place but he is a trustee of the NOW: Pensions fund. His fund conducted research of more than 2,000 21 year-old plus people with at least one workplace pension. The result was quite clear: 39% of the individuals surveyed said that pot follows member was their preferred option compared to just 6% for the aggregator model. It was suggested that the aggregator model is so difficult to understand that people chose the easier one because they recognised its simplicity. Is it not the case that we are looking for simplicity? People were asked, “Do you want your pension to follow you, or do you want it placed somewhere else, which will be some distance from you both in employment terms and in being able to influence what it does?” People in that survey, which is probably one of the most comprehensive that we have had, said, given the choice, they preferred to have their pot following them when they changed jobs.
	That suggests that explaining an aggregator model to the public, who do not understand the pensions market well anyway, would be much more of a challenge. People will not understand what is being made of their pension, seeing it going away to a distant aggregator, compared to the idea that their pension moves with them to their new employer. I do not believe that there is evidence that the interests of individuals would be best served by the undefined aggregator system. It will be difficult to administer, as my noble friend Lord Stoneham said, and will lead to the market being dominated by a few large schemes and providers, and where everyone will be guaranteed to have two pensions rather than one.
	The issue raised by the noble Lord, Lord Turner, and by the noble Baroness, Lady Drake, about quality is crucial. I recognise, as we all do, that the OFT in its report on DC pension schemes said clearly that competition was not driving good value for money for all savers. That is precisely why the Government intend to legislate, and we are seeing some of that today at Clause 43 and Schedule 18, which the Government are dealing with. The whole process of raising the standard is crucial—most importantly, perhaps on charges. Perhaps my noble friend can confirm that it is the Government’s intention to introduce matters in relation to charging before the end of this Parliament.
	I believe, too, that we have to consider the choices that people will have to make. Who will decide where an aggregator policy for them will be placed? How would the allocation process work? Would it be by a random list, a computer allocation or perhaps names in a hat? These are all unknowns. What happens to people’s pensions which are forced on them when they move jobs under the aggregator system is very unsatisfactory. Far better that they should have a simple system in which they have one contract with one pension which they take through with them.
	However, the crucial factor is the standards that each of these pensions schemes have applied to them. That is why I welcome the Government’s initiative. I know that by the end of this year they will introduce proposals to ensure that the standards are right. As my noble friend Lord Stoneham said, we are looking for high standards, not a minimum standard, in this process.
	We have before us a choice. We already have 2 million new savers as a result of automatic enrolment, and waiting will mean that many of the people being enrolled will be denied this opportunity as another scheme would have to be worked up and compared with the one proposed. The pension funds are already working with government in order to work the scheme up and to get it ready and in place. Can my noble friend tell me what progress has been made already to ensure that pot follows member is in a fair and fit state to be introduced rapidly?
	We have to make a choice. It seems to me that we should choose the pot-follows-member position and thereby give greater power and greater pension outcome to millions of new savers. We should not accept the amendment.

Lord Turnbull: My Lords, I have not previously intervened in this debate. I declare an interest as a director of a life insurance company, the Prudential, which is not a big player in this market, but the views I will express are my own.
	My first point relates to the high rate of change in our economy and society, which was remarked upon by the noble Lord, Lord Hutton. People are increasingly likely to adopt more flexible employment patterns. Does a seasonal worker—let us say he is a county cricketer who is not good enough to have a central contract with the England team but plays cricket in the summer and works in a fitness centre in the winter or, like Alec Bedser, humps bricks and builds up his strength—alter his provider season by season? How would you make that kind of system work? The pension pot follows member would not necessarily work for those kinds of people.
	Secondly, the life expectancy of employers is not as great as one might think. Only 18 of the original FTSE 100 members are still in the index—some of them have gone out of business or been taken over and broken up—and turnover is likely to be even greater at the SME level. So relating pensions to one’s employer is not necessarily the best thing to do.
	The noble Lords, Lord Stoneham and Lord German, have tried to argue that the aggregator model will provide a comfortable ride for the existing incumbents and will create mega-providers. However, who are the providers of pot follows member? They are the existing pension providers. We should not make the easy assumption that one model is anti-competitive and will produce a concentrated market and the other will create a highly diverse and competitive market. They each have their own faults and we should not attribute a monopoly of virtue to pot follows member.
	That is why this amendment, which provides a degree of choice, is valuable. It would give us a chance to rethink the circumstances in which aggregator is better and to answer the many questions that have been raised, and to rethink the circumstances in which pot follows member is the superior solution.

Lord Freud: My Lords, I feel rather privileged to have been here this afternoon to hear a pantheon of some of the leading pension thinkers in the country concentrate on an issue. As a result it has been a very interesting debate. Clearly we all agree that this is a very important topic. We need to find a solution to the issue of small pots and I will make a case for why the Government believe that automatic transfer is the right solution and why we do not need any alternative provision.
	We are clear that the pot-follows-member model, with small pension pots automatically moving and being combined with the individual’s current live workplace pension, will lead to increased consolidation of pension pots, better outcomes in retirement and better member engagement, as well as administrative savings for the industry. The pot-follows-member model builds on the essential foundation of automatic enrolment —the employer/employee relationship that is proving so successful in driving retirement saving, including among those who have never had a pension before. Employees identify with this relationship and with the idea of pots following them to their new employer.
	My noble friend Lord German mentioned the research carried out by NOW: Pensions. It showed that 39% of individuals would like their pot to follow them automatically compared with 6% who wanted their pot sent to an aggregator scheme. For the purposes of that research, NOW: Pensions defined the aggregator model as a pot that is automatically moved to a central scheme that meets certain standards. This definition, although high level, is helpful because otherwise we have no clear sense of what an aggregator actually is. Indeed, these amendments do not help define what an aggregator is or how it would work. In fact, these amendments—which have been revised since we discussed them in Grand Committee—appear to be even less workable than before. For instance, they appear to give the decision about where to move the pot to the ceding scheme. By definition, the ceding scheme is the scheme with the least interest in the individual and their outcome in retirement because it is losing the pot.
	This seems entirely counterintuitive when compared with the successful current account switching service—CASS—that helps customers move banks. This service puts the onus on the new bank to ensure that the switch happens, because it was recognised that the bank gaining the account will have more interest in making the move as smooth as possible than the old one. It is perhaps not unreasonable that when people move employers and join a new pension scheme they will expect the new scheme to do the work of transferring the pot for them, as happens when they switch their current account, but this would not be true under a push transfer model which these amendments would introduce.
	I agree with my noble friend Lord Flight, who points out a real problem with the proposed aggregator model. It really is not clear who chooses where the pension is aggregated. There are other fundamental flaws, such as the lack of any provisions to ensure that the same scheme is used each time—someone could end up with pots in multiple aggregators, undermining
	the core aim of consolidation. Moreover, there is no definition of what an aggregator is, who could set one up and what the criteria for doing so would be. This lack of clarity will not help the industry in driving forward the development of the implementation model. Noble Lords may say that this detail can be worked out at a later date, but it is exactly this detail that needs to be resolved before any measure can be put on the statute book.
	I have real concerns that the House is being asked to accept a theoretical concept, with all the details to be entirely devolved to secondary legislation, but I also have issues with the concept itself. The Government welcome the recent Office of Fair Trading report and accept its conclusions. The OFT was damning of the pensions market, saying that,
	“the combination of a complex product and weaknesses in the buyer side of the market means that competition cannot be relied upon to drive value for money for all scheme members”.
	We have heard the argument that the introduction of automatic transfers into aggregators will shake up the market and essentially skew it in favour of consumers by ensuring that all can save into large schemes that provide excellent value for money. However, I believe that the aggregator model would skew the market in favour of large providers and would reinforce the dominance of a few big players.
	I believe the assumption is that aggregators would in some way be licensed and that schemes would have to meet certain standards to be able to act as aggregators. This would favour current large schemes that have the business model to enable them to accept large numbers of pots from individuals with employers they have previously had no contact with. Alternatively, if the large players in this market do not take the challenge, the Government would have to subsidise an aggregator scheme, which would raise state aid issues in Europe.
	Aggregator schemes would enjoy a huge advantage over the rest of the market. They would be the default destination for almost all pots and, as the consumer would not be making an active choice, there would be no incentive to innovate. We have estimated that there will be three-quarters of a trillion pounds in lost pots by 2050, which is a lot of money—

Lord Hutton of Furness: I am very grateful to the Minister for giving way. Can he tell us what assumptions underpin the figure that he has just given to the House?

Lord Freud: Those figures are pretty detailed and I will write to the noble Lord with them if I do not get a detailed breakdown in the next minute or two—which I might. It is a huge amount of money, which the noble Lord will appreciate as well as anyone else, and it is a lot of money to have in a complacent and stagnant market. If, as the noble Baroness, Lady Drake, suggested, employers could choose the aggregators, and these aggregators were to become open to active members, this market dominance would be complete.

Baroness Drake: I do not think I said that the employer could choose the aggregator. I said that if the aggregator was able to have active members as well as aggregated members, that would enhance portability,
	particularly in some industries, which would reduce the need for transfers and the consequential costs. I do not think I actually said that the operating model would mean the employer chose the aggregator—I left that to the departmental assessment.

Lord Freud: Well, if they started moving to active members as well, whatever the route, it would give this group of organisations an enormous market position. I confirm to the noble Lord, Lord Hutton, that I will have to write to him.
	It seems strange that, in response to the OFT’s conclusion that there is a lack of competition in the pensions market, the Opposition are calling for the creation of a market dominated by a few big master trusts. We need only to look at other industries, such as the energy market or banking sector, to see that dominance by a few powerful players can result in real concerns for consumers. If we were to press on regardless with enabling these large aggregators to come into being, we would need to be clear that there would be no turning back. It would be extremely difficult to reverse the process if we found that an aggregator model was not sustainable, and to tackle the vested interests if consumers were getting a poor deal.
	We have heard—for example, from the noble Baroness, Lady Sherlock—that the Government are alone in supporting pot follows member. It is not true that few people support it but I agree that there is a powerful lobby supporting the aggregator model. It is hardly surprising that those who are shouting the loudest are those who are lobbying on behalf of master trusts that could come to dominate the market under an aggregator model.
	The ABI itself supports pot follows member, as do many groups within it—Aviva, Fidelity, Friends Life, HSBC, Origo, Scottish Life and Scottish Widows—as well as non-members of the ABI such as Alexander Forbes, Altus, Buck, Foster Denovo, the Investment Management Association, JLT and the National Federation of Occupational Pensioners.
	This Government’s starting point is the consumer—and it is the individual who wants to see their pension follow them to their new employer, as the research from NOW: Pensions, which we have already touched on, underlines. The ABI’s consumer research showed that 58% of individuals said that the pot should follow them automatically to the new job; 10% were in favour of a new central scheme, the aggregator; 15% said the pot should stay where it is and it is up to you to move it; and 17% said it should be visible with all other pension pots at a central place online. That is the sentiment among consumers.
	I appreciate that some consumer groups have concerns. I say to them that we are listening to those concerns and that low charges and scheme quality are top of our agenda, not just for automatic transfers but for all schemes. We want these groups to work with us and the industry now to deliver pot follows member in the simplest, safest way for consumers.
	The noble Baronesses, Lady Drake and Lady Sherlock, raised concerns about consumer detriment. I remind the House about the work the Government are doing to ensure that all schemes are good schemes. Uniformity
	is not good for consumers, but only if all aggregators had identical charges and standards would we completely remove the risk of an individual moving to a worse scheme. The noble Lord, Lord Turner, made the point about the interconnectedness of these issues. The Minister for Pensions has confirmed that he remains “strongly minded”—I think that is fairly parliamentary language —to introduce a charge cap. My noble friend asked about the DWP response to the OFT and the consultation on charges. That response is coming soon and we will be discussing that later this afternoon.

Baroness Hollis of Heigham: Can the Minister tell us what the department has in mind as an appropriate charge cap?

Lord Freud: Various figures have been talked about, but I do not think I can pre-empt the answer to that question, which will be issued very soon.
	In contrast to legislating radically to change the market, we see pot follows member as a way of building on the existing automatic enrolment structure quickly to reach a point where transferring pots is an integral part of the industry. Pot follows member does not prevent industry from innovating in future. Indeed, as individuals become more engaged in pension saving, they may want to be more involved in deciding where their pension pot is and in choosing a preferred scheme.
	In response to the point made by the noble Lord, Lord Hutton, there is even scope to introduce an aggregator in future if there is demand for it, so we are not closing any doors by pursuing this route now.

Lord Flight: I think that the Minister just said it, but can he confirm what I view as a crucial point, which is that the individual is still free to choose where he might wish to place his consolidated pension savings and that we are talking only about the default option? Therefore, as people become more informed, some may choose not to consolidate in their employer’s scheme.

Lord Freud: I can confirm my noble friend’s question—or I can give the answer to confirm it.
	At this point in time, when we are just starting out with automatic enrolment and successfully getting people saving for the first time, we need to make it as easy as possible for them to build their pension. We need to use inertia in the right way. That means moving a small pension pot to the current live pot where the individual can see it growing, rather than sending it off to a scheme with which the individual has no engagement and in which they have no interest.
	Now is not the time to break the link between the individual and his or her employer. Automatic enrolment is going well, with 3 million individuals newly saving and less than 10% opting out. It is reinforcing the workplace pension as a key element of the benefit package that employers offer their staff after decades of decline in occupational pensions.
	I have heard the argument that these amendments are designed to give the Government another option, which appears on the surface to be a generous approach.
	Providing the Government with greater flexibility is one thing, but listening to the debate today, I suspect that few on the Opposition Benches want the Government to have the flexibility to chose anything but the aggregator model.
	In practice, the amendments will leave us in limbo and bring back uncertainty at a time when industry is beginning to get behind, and position itself to deliver, pot follows member. As my honourable friend in the other place announced on Monday, officials are currently exploring the feasibility of using HMRC’s PAYE data and system to help us to deliver a secure, efficient and straightforward pot-matching element to implement the process.
	In response to the assertion of the noble Baroness, Lady Sherlock, that pot follows member would be hard to set up, we have recently had some very positive workshops with industry representatives and HMRC. The model is already inspiring some exciting and innovative approaches to transferring money with an employee as they move jobs. The cost of the transfer was specifically mentioned by the noble Baroness, Lady Drake. It will be the same for an aggregator as for pot follows member. Altus has challenged the claim that pension transfers are too hard and too expensive by stating that transfers for ISAs and funds cost £1 or less, and that this can be replicated for pension transfers.
	After two years of discussion and debate on this issue, even if we cannot agree with the Opposition on the right delivery model, I hope that we can agree that we need to take a positive step forward. On the “pause to reflect” point made by the noble Lord, Lord Hutton, I do not believe that we are rushing into this measure. We first consulted more than two years ago and followed up with two policy papers. We also held extensive discussions with industry and consumer groups within that period. I urge the noble Lords to withdraw their amendment to allow us to work together, and work with industry, to make automatic transfers a reality.

Baroness Sherlock: My Lords, I thank all noble Lords who have contributed to what has been another classic House of Lords debate. I particularly thank my co-signatories to this amendment, my noble friends Lord Hutton and Lady Drake. The Minister referred at the outset to a pantheon of pensions expertise, and indeed it has been. The noble Lord, Lord Bates, joked in Grand Committee that the Pensions Commission was almost quorate since two of its three members were gathered there. I say to the Minister, as I said then to the noble Lord, Lord Bates, that if I were sitting where he was and this pantheon was sitting opposite me and telling me that I was wrong, I would be pausing, just as my noble friend Lord Hutton suggested.
	A number of arguments have been made today. The Minister says that the Government have been discussing this for two years but this House has not. When we discussed it in Grand Committee, I do not recall hearing a single supportive speech for pot follows member. I am glad that the researchers of the noble Lord, Lord Stoneham, moved him from his position then to the position that he articulated so clearly today, but I do not think that anyone in this House has heard those arguments made until today. I am glad that we have
	heard them, and very glad that the Minister has been doing work with the industry to get it ready to deliver what will be this Act. However, it is still a Bill; it is not an Act and this House has every right to make its own decisions. Whatever decisions Parliament makes, I have no doubt that at that point the Minister and his colleagues will go out there to deliver.
	What arguments have we heard today against our enabling amendment? First, we have heard that it is not clear what the choice is. Well, that is the point: the amendment says to the Government, “Go back and think again. We will work with you if necessary, but think again”. It is said that there will be a delay. Yes, there will be a delay, but the wrong thing would be to rush ahead and make a decision because you want it now, if the consequences would be very serious because it is the wrong decision. This is too serious to rush into. A lot of criticisms have been made so far. For example, the Minister says that the way in which this amendment is constructed would leave the choice of the aggregator with the outgoing employer. If the Minister looks again at Amendment 23J, he will find in fact that it says that regulations may do one of two things. There is a big “or” between the two; it is either push or pull. Everything about these amendments is constructed to say that we recognise there are choices to be made but think that the Government have not given enough thought to what should be the right way forward for consumers.
	We have heard nothing to counter the arguments made across the Benches here. What about all those who leave employment? What about the self-employed, who make up the fastest-growing sector: where do their pension pots go? What happens to the pension pot of the seasonal cricketer mentioned by the noble Lord, Lord Turnbull? I am sorry, but I live in Durham and our cricketers are mostly in the England teams, so I cannot advise him there. However, I can tell him that that person would really struggle under pot follows member. What about all those people in mini-jobs who will find themselves in a position of not having a single employer? Much has been said about the relationship between employer and employee, but the truth is that every model of pension scheme struggles with employee engagement. As the noble Lord, Lord Flight, pointed out, the whole point of this is that it addresses only the position of those who make no active choice themselves, yet those are the people to whom the state owes the greatest responsibility. These are the people whose funds we are moving, without their explicit consent, from one employer to another.
	Much has been made of the fact that we want all the schemes to be of the best quality, but let’s get real—the OFT has already said that the market is not working. The noble Lord, Lord Turner, has described the challenges they found: people are learning when they come to retire that between 25% and 40% of their pension pot has gone in charges. If the Government really are committed to tackling charges I would invite the Minister to intervene again and to give a proper answer to his noble friend, the noble Lord, Lord German, about when the Government will cap pension charges. If he will not tell us now, I have a very simple solution for him—he can vote for our amendment in the next group and cap the charges tomorrow.

Lord Freud: I really do need to take up the invitation. I think that we have made it clear that we will deal with this within this Parliament, which I think means by a date some time in May. I think that that is fairly clear.

Baroness Sherlock: It is interesting, my Lords. What has happened—without wishing to pre-empt the next debate—is that the Opposition pushed the Government to do this but the Government said that it was not necessary. The Minister then went out to consultation and suddenly seemed to get cold feet, and he put it on hold for a year. There is a very small window but I am delighted to hear it. But the Minister can vote for our amendment and need not wait. The Government are again being invited to do it, and my noble friend Lord Hutton has very powerfully made the case for why they should.
	I have been careful to try not to put my personal preference in the proposals, but I would be happy to join the Minister in a proper cross-party, consensual discussion about the way forward. The Labour Party introduced auto-enrolment and I pay tribute to the Government for taking it forward. We all share a common objective: to get as many people as possible saving for retirement. They can do so only if they have trust and confidence in the pensions market and in the schemes they are investing in. If they do not have that confidence they will not save and we will all be the poorer. The best way to do it is to ensure that there are schemes in which people can have confidence. I believe this is the right way forward and I wish to test the opinion of the House.

Division on Amendment 23
	Contents 201; Not-Contents 252.
	[See col. 981 for explanation of mistake in voting figures.]
	Amendment 23 disagreed.

Schedule 17: Automatic transfer of pension benefits etc
	Amendments 23A to 23P not moved.
	Clause 38: Automatic enrolment: powers to create general exceptions
	Amendment 24
	 Moved by Lord Freud
	24: Clause 38, page 19, line 12, at end insert—
	“( ) But the regulations may not provide for an exception for employers of a particular size.”

Lord Freud: My Lords, it was Parliament’s original intention that everyone should be automatically enrolled, subject only to age and earnings criteria. This has the advantage of a very simple approach. It made it clear that all employers, whatever their size or the nature of their business, would be covered. It relied on individuals to opt out if pension saving was not right for them.
	We can now see that automatic enrolment into a workplace pension is working and we are seeing reassuringly low opt-out rates. However, we also recognise that there are some very limited situations in which automatic enrolment simply does not make sense for the jobholder. Opt-out is effective but it does not take away the need for employers and pension schemes to go through the enrolment processes and for the individual then to opt out, even where it clearly makes no sense for that individual to be put into pension saving. This is a waste of employers’ time and frustrating for individuals.
	We continue to receive evidence from stakeholders of instances in which it makes no sense automatically to enrol individuals. Our consultation of March 2013, Technical Changes to Automatic Enrolment, sought views on how the automatic enrolment process could be improved and invited views on whether there were certain categories of workers whom it might make sense to exclude from automatic enrolment. The responses strengthened our view that in certain circumstances automatic enrolment is not appropriate and that, for these individuals, the most suitable option is to give their employer the option not to enrol them in the first place.
	On 12 February, we published a response to the consultation on how the power to make exceptions to the automatic enrolment duty might be used and identified four situations which merit further consideration: first, people who could face tax charges if they make further pension savings; secondly, people serving a period of notice; thirdly, people about to leave their employment on retirement; and, fourthly, people who have already left their pension scheme following contractual enrolment.
	As noble Lords know, Clause 38 gives us the scope to provide broad exceptions to the employer duty, but we have made it clear on more than one occasion that we will not use it to exclude large numbers of employers based solely on size or the nature of the employer’s business. We do, however, acknowledge that the power could, in theory, be used to exclude small and medium-sized employers and we understand the concerns raised by the Opposition on this point. We are content to limit the power so that it cannot be used in this way. Amendment 24 therefore specifies that regulations cannot exclude an employer from their automatic enrolment duties on the basis of size. I beg to move.

Lord McKenzie of Luton: My Lords, we should thank the noble Lord, Lord Freud, for bringing forward this government amendment, which as far as it goes is a restriction on the power to create exceptions to the employer automatic enrolment duty. It responds in part, as the noble Lord has acknowledged, to the amendment moved in Committee by my noble friend
	Lady Sherlock and by Gregg McClymont in another place. We are grateful for the Government’s movement on that.
	As we have heard, this amendment narrows the circumstances in which regulations can be deployed, and precludes them being used to provide an exemption for employers of a particular size. This will therefore appear to deny the exemption, whether size is determined by numbers of employees, profitability, turnover, capitalisation or asset base, or some other size criteria. Perhaps the Minister can confirm that that is how he sees it. Nevertheless, the Bill would still leave scope to carve out exemptions on a fairly wide basis. That could be by reference to a description of worker, “particular circumstances”, or “in some other way”, as the Bill provides—for example, by sector.
	We accept entirely the assurances of current Ministers that the purpose of the government amendment is to offer employers more flexibility in a limited number of specific situations that affect only a small number of workers. However, even as amended the Bill is not so tightly drawn and opens up the prospect in the future of a wider impairment of the employer duty, which is the foundation on which auto-enrolment is built.
	We acknowledge that the Government have consulted widely on the issue and rejected a number of suggested easements to the employer duty. Other than for four specific circumstances, the Government in their response to the consultation have concluded:
	“We remain confident that the right to opt out remains the most suitable option for all other workers who do not wish to remain in pension saving”.
	We agree with that.
	The question therefore arises as to whether the four circumstances identified—and remember that that was after a very extensive trawl, including the experience of live running—warrant the potentially broad amendment which will remain in this legislation. The four circumstances referred to by the Minister—those with tax-protected status for existing pension saving, those on the brink of leaving employment, those who have given notice of retirement, and those who have recently cancelled membership after being contract joined—might well justify an exemption on automatic enrolment rather than rely on workers opting out, especially given the potentially large tax penalties which might arise for those with tax-protected status. However, until the practical consequences of putting this into effect are fully considered—and we welcome the commitment to consult on a draft instrument, albeit still a negative one—we cannot be certain that the “cure” is better than the “ailment”.
	On reflection, a better way forward might have been to identify these four specific circumstances in primary legislation together with the power to introduce regulations for the exemption of the employer duty in all or any of these situations. This would have removed concerns over the Bill retaining the still potentially wide powers of exemption. If it is too late to consider this approach, as it might be, I hope that the Minister can give as much assurance on the record as to the intended use of what will remain of this clause.

Lord Freud: Let me just deal with the first specific question raised by the noble Lord, on the issue of size and what we mean by that. Clearly, the Opposition were primarily concerned when we went through this in Grand Committee that a Government—this one or any other—should not be able to exclude small and medium-sized employers from their duties on automatic enrolment. The primary definition of size here is to prohibit an exception based on the number of workers, which is one central understanding of the size criteria, but it could also mean, as the noble Lord indicated, turnover, profit or VAT registration. We do not have the need to define it further in the Bill because whatever measure of size was used would be prohibited by the government amendment.
	On whether there is a better way in which to limit the power that is the thrust of the noble Lord’s question, we have identified these four circumstances. We are not confident that they are the only circumstances; more may come up. We have considered in legal terms that this is the best way to be able to respond in making sure that when other circumstances arise we can use this power. We believe that it is prudent to leave this Government and future Governments the flexibility to consider other criteria. However, I can say on record that we have no particular situations in mind here; we are simply leaving ourselves the option to respond to new or changing circumstances.
	On the four situations that have been identified, we will develop proposals for workable exceptions, and they may have to work in different ways in different circumstances. As the noble Lord said, we will consult with final proposals and draft regulations in due course, although of course regulations are contingent on Royal Assent.
	I hope that with that set of explanations the noble Lord will greet with enthusiasm and delight this amendment in response to his concerns.
	Amendment 24 agreed.
	Clause 43: Work-based schemes: power to restrict charges or impose requirements
	Amendment 25
	 Moved by Lord Freud
	25: Clause 43, page 24, line 2, leave out “work-based”

Lord Freud: My Lords, in moving Amendment 25, I shall speak also to government Amendments 26, 30, 31 and 26A.
	As my honourable friend the Minister for Pensions announced in a Written Statement in the other place at the start of this week, the Government remain firmly committed to ensuring that consumers receive value for money from their pension savings and to seeing this through during the life of this Parliament—a point that I made earlier. Our response to the consultation on charges, and further proposals on quality and transparency in defined contribution workplace pension schemes, will be published soon. We are taking action to ensure that those who are defaulted into pension
	saving through automatic enrolment can be confident that their money is invested in well governed and transparently managed schemes.
	Amendment 26A demonstrates our firm belief that transparency of costs and charges is fundamental for good scheme governance and to enabling comparison between schemes. On this we are in complete agreement with the my noble friend Lord Lawson and the thrust of the amendments which he has tabled on this subject. I take this opportunity to thank him for the helpful discussions we have had on this issue thus far and I look forward to engaging with him further on the detail of these provisions. We have always been clear that disclosure of transaction costs should be improved; that is why we sought views on the best way of doing this in our consultation following on from the Office of Fair Trading study of the defined contribution workplace pension market. In the consultation, we suggested using our existing permissive powers in the Pension Schemes Act 1993 to require improved disclosure of information. However, I am pleased that our Amendment 26A goes further than this and, for the avoidance of any doubt about our intentions, requires the Secretary of State to make regulations requiring greater transparency around the transaction costs incurred by work-based defined contribution schemes. It would also allow the Secretary of State to disapply that duty in limited circumstances in which he is content that there is an alternative regulatory regime in place for specified schemes. The intention is for this to provide for a situation in which the Financial Conduct Authority has made its own rules for disclosure of information about transaction costs in relation to contract-based schemes, in which case the Secretary of State may need to make regulations only for trust-based schemes which are regulated by the Pensions Regulator.
	This amendment would provide for the types of transaction costs covered to be specified in regulations. Here again, we are in agreement with my noble friend Lord Lawson that the full range of transaction costs that may be borne by scheme members should be disclosed. I would like to reassure the House that we do have the powers to ensure that this happens, but the Government need the flexibility to require disclosure of types of costs that might become apparent over time. Government Amendment 26A has therefore been drafted specifically to provide this flexibility and to future-proof the legislation. We will formally consult before making the regulations but, at this stage, and in the first instance we would expect them to include costs such as stamp duty and bid-offer spreads. We would be more than happy to involve my noble friend Lord Lawson, and other noble Lords with an interest in this matter, in the discussion of what the regulations will cover.
	The amendments of my noble friend Lord Lawson also provide for making information about transaction costs publicly available on a common basis. This is, again, a suggestion with which we fully agree and thank my noble friend for highlighting this issue. Making such information publicly available will surely support consumers, employers and others in making comparisons and deciding between schemes. Public comparison of charges is something on which we sought views in the recent charges consultation and will publish further
	proposals soon in the forthcoming government response. Our existing disclosure powers would enable us to regulate for information on transaction costs to be made public, but given the importance of this issue, I am happy to consider between now and Third Reading whether any changes can be made to primary legislation to reinforce and make explicit this commitment to provide for information to be made publicly available.
	To touch briefly on the scope of the disclosure requirements, the duty that is created by this amendment applies to money purchase, or defined contribution, pension schemes only. This is narrower than the provisions of the existing power, which will remain, under which regulations can apply to all occupational and personal pension schemes. The reason why the Government are focusing the new duty on the defined contribution market in their package of measures on charges, scheme quality and transparency is that in defined contribution it is members who bear the risk of their investment, and members whose pension savings may be diminished by high or unclear charges. It is also the defined contribution market that the Office of Fair Trading has investigated and recommended action to reform.
	Members of defined benefit pension schemes already enjoy a level of protection from such risks. However, the power to require greater transparency of scheme costs and charges could cover all schemes, and we will continue to consider whether we should use that power to require transparency in defined benefit as well as defined contribution schemes.
	The new duties to disclose transaction costs will form one part of a wider package of measures to set minimum quality standards for all workplace defined contribution schemes, including taking action to control charges in default funds used for automatic enrolment.
	We have, as I said, consulted on these measures and I expect the Minister for Pensions to respond formally soon. The Minister has been clear that we are committed to seeing this policy through during the life of this Parliament which, under the Fixed-term Parliaments Act, means before May 2015. For that reason, I see no need for Amendment 29. We have the power in Schedule 18 to restrict charges. I can reassure noble Lords that we would not have placed this power in the Bill if we did not intend to use it as soon as practicable. With regard to the precise timing of when these regulations shall be laid, I refer noble Lords to the Minister’s strong steer and I fully expect more detail to be available when the formal response is published.
	Before I conclude, I should like to explain to the House the purpose of Amendments 25, 26, 30 and 31. We have been clear that we want the ability to protect those in both trust-based and contract-based schemes and that this protection must extend to closed schemes, by which I mean schemes without any active members. However, the definition of “work-based” schemes currently used in Clause 43 and Schedule 18 does not extend to this group of schemes.
	Members of the House may be aware that the Office of Fair Trading and Association of British Insurers have recently announced further details of
	the audit of high-cost and legacy schemes. This exercise will focus on those schemes that the Office of Fair Trading has identified as being at risk of offering poor value for money for members. Where the audit identifies changes that are needed to address shortcomings in these schemes, we expect these to be made on a voluntary basis. However, we think that it is important to have the ability to require improvements in these schemes, should this prove necessary. Government Amendments 25, 26, 30 and 31 therefore make technical changes to the definitions used in Clause 43 and Schedule 18, to ensure that this can be done.
	This Government are committed to ensuring that consumers receive value for money from pension savings. I am pleased that, along with the existing powers in Clause 43 and Schedule 18, the amendments in my name will ensure that the Government have all the necessary powers to make this happen. I beg to move.

Lord Lawson of Blaby: My Lords, I begin by welcoming very warmly what my noble friend has said. The Government have done the right thing and moved a long way since we debated this issue in Committee. We see government Amendment 26A as part of that move, but I am glad to say that the Minister has at the Dispatch Box this afternoon said that he will, quite rightly, go even further. I should therefore like to go over the points, perhaps for clarity. The Minister does need to go further, some of the reasons for which he has mentioned. I will not therefore speak to any of the amendments in my name as such because they have been overtaken by events. It is the substance that matters.
	There seem to me to be four ways in which further improvement is needed beyond Amendment 26A, the first of which my noble friend has agreed to. That amendment would open the door to disclosure but to a limited number of categories. It is essential that there should be full public disclosure. This is important. For example, all potential members of pension schemes and workers should know what is happening, given that every -one knows that the costs of pension schemes vary enormously, as the noble Lord, Lord Turner, mentioned. This is not in dispute. It is a fact. Studies have shown that that variation bears no relation to performance, and some of the costs are absolutely enormous. In money purchase schemes, that is a direct cost to the pension that the beneficiary will get at the end of the day.
	Nobody has mentioned this so far but I do not think that we should forget the press. There are sections of the press that give excellent consumer advice on financial matters, and not just the press: there is the excellent Paul Lewis, with his “Money Box” programme on the wireless. All these people need the information. They need to be the beneficiaries of disclosure if they are to be as effective as they might be for the benefit of members of pension schemes. Therefore, there should be total disclosure, and I suggest in my amendment that perhaps the best way of achieving that is for there to be disclosure to the Pensions Regulator, who publishes a public register which anybody can look at. However, there may be another way which the Government prefer and which is equally good. I was very glad to hear my noble friend say that there will be full public disclosure, which goes beyond that set out in Amendment 26A. That is what is needed.
	Another way in which Amendment 26A is inadequate is that it refers to “some or all” of the costs. My noble friend touched on that but it is of the first importance that it says “all costs” and that all the costs are itemised. It is obvious that if only some costs are disclosed, it will be easy for investment managers to load on to their costings costs which are not among those that need to be disclosed. That is a complete nonsense. It is absolutely essential that all costs are itemised and disclosed.
	There is another thing that needs to be attended to and where further progress needs to be made, but again it seems that in the spirit of what my noble friend said he is prepared to go there. His amendment concerns disclosure of information about transaction costs. It refers exclusively to transaction costs and, again, that is not adequate; it has to be all costs. There are, for example, investment managers’ fees, performance fees and custody fees, all of which are not transaction costs. Indeed, the Investment Management Association has stated that it does not classify equity commissions as transaction costs. Therefore, clearly the limitation to transaction costs is an invitation to abuse. All costs that are incurred have to be included.
	The final way in which the amendment needs to be improved is perhaps less important than the other three ways; none the less, it is still important. The present proposal—my noble friend made this clear—relates only to money purchase schemes. It does not apply to defined benefit schemes. Defined contribution schemes, money purchase schemes, or whatever one likes to call them, are more important because the proposal directly impacts on the benefit that the beneficiary of the fund or pension gets at the end of the day. If it is a defined benefit scheme, one could say, “Why does it matter?”, but I do not think that it is a matter of indifference. Investment managers can say, “We have to control our costs, and reveal our costs, on money purchase schemes and defined contribution schemes. We can get the money back by loading extra costs on to the defined benefit schemes”. That would be wholly unsatisfactory. Most defined benefit schemes may be closed to new members but they are still going on and are substantial. A further point is that on a number of occasions the Government have expressed concern about pension fund deficits. This proposal could have a direct effect on the size of pension fund deficits. Therefore, it is necessary to bring defined benefit schemes into this disclosure. Transparency should not be explicitly and exclusively confined to money purchase schemes.
	Those are the four areas in which further progress needs to be made. My noble friend said that he would be happy to discuss how it will be done between now and Third Reading. I would be happy to take part with other interested parties in these discussions, following which we look forward to further proposals and amendments at Third Reading.
	I have a further small point for clarification about something that is slightly obscure. I do not think that it has been mentioned yet—certainly not by the Minister. Subsection (6) of the proposed new clause in Amendment 26A states that,
	“subsection (5) does not apply in relation to a scheme of a particular description if … as a result of another enactment, requirements are imposed relating to the disclosure of information about transaction costs of schemes of that description”.
	The only thing that I can assume—I hope my noble friend will clarify it, as I cannot believe that he has some other Bill up his sleeve—is that there may a European Union directive in the offing that may cover this area. That may be what is being alluded to. It would be helpful to the whole House if he explained precisely what lies behind this curious subsection.

Lord Browne of Ladyton: My Lords, it is a genuine pleasure to follow the noble Lord, Lord Lawson, and to engage in the debate on this group of amendments. The noble Lord has had an extremely distinguished career in both Houses of Parliament. I have seldom heard his name used with such strength by a Minister from the Front Bench—certainly not for a long time. It may be a lesson to others on the Benches behind the Minister on how to get that level of recognition.
	Amendment 29 requires the Secretary of State to,
	“lay before Parliament regulations to restrict such charges as soon as reasonably practicable and no later than 30th April 2015”.
	We want to ensure that the promise to do so, and the commitment to see this through in this Parliament is not kicked further into the long grass, but is exercised,
	“as soon as reasonably practicable”.
	This may be redundant now, as the noble Lord, Lord Lawson, has indicated, but my noble friend Lady Sherlock and I support Amendments 27 and 28, which require full disclosure of management and transaction charges for each work-based pension scheme. Amendment 26B amends government Amendment 26A that is broadly to the same effect. Amendment 26B requires the information that the Government now belatedly agree should be disclosed to pension scheme members should also be disclosed to the pension scheme regulator who, in turn, must maintain a public register of all costs. Of course, I welcome Amendment 26A and I thank the Minister and congratulate him on having tabled it. I have the advantage of the Minister’s explanation about why, at this extremely late stage, the Government have—I will not say U-turned—but changed their position substantially by almost 180 degrees on the very issue of transparency and disclosure. I welcome the amendment. When the Minister was explaining this, his overconcentration on the amendments of the noble Lord, Lord Lawson, and his engagement with this process—airbrushing out the contribution of my honourable friend Gregg McClymont, who persistently raised this issue in amendments in the House of Commons—may have given some people the impression that the Government’s change of position is more to do with Conservative Party discipline than their commitment to disclosure and transparency in these issues in the interests of the saver.
	That may be an inappropriate interpretation but the fact that the Government ignored various amendments in the House of Commons which were similar to the amendment tabled in Committee by the noble Lord, Lord Lawson of Blaby—I am not looking for any name check from the Minister but my noble friend Lady Sherlock and I tabled an amendment in Committee in similar terms—needs explanation. This is particularly important given that only a few months ago the Pensions
	Minister, Steve Webb, was reported to have said at an NAPF conference that transparency gets you virtually nowhere.
	On the public register issue, which is now embraced, I commend to the Minister columns 389 and 390 of the 12th Sitting of the Pensions Bill Public Bill Committee on Thursday, 11 July 2013. They contain an excoriating criticism of public registration of this information by the Pensions Minister when it was suggested by my honourable friend Gregg McClymont and proposed as an amendment to Clause 35 in similar words to those used by the noble Lord, Lord Lawson, in his amendment.
	Why do I make so much of this in the face of this significant concession by the coalition Government? It is because—I shall construct this argument carefully—the reason for Amendment 29, and our support for it, is that it is difficult to follow exactly why the Government were so reluctant to go down this path, and why they have accelerated down it in such a way in the face of the intervention of the noble Lord, Lord Lawson, if they really believe that the process of capping charges and its transparency is in the interests of the saver and are going to see it through against the commitments that we have all been given.
	I shall construct my argument and the Minister can respond to it. It has always been Labour’s position that it supports broadly the reforms contained in both halves of the Pensions Bill. As my noble friend Lady Sherlock made clear in her excellent speech at Second Reading on 3 December 2013, simplifying the complexity of the present state pension system into a single-tier pension is supported for many reasons, which include that it provides a predictable platform on which the individual is then encouraged to build, principally through private pensions.
	My noble friend went to argue that the success of the complementary private pension savings model is dependent upon automatic enrolment of all workers into a workplace pension scheme—which is moving well—provided that every one of the 10 million being auto-enrolled between 2012 and 2017 can be sure of getting value for money from that pension scheme. This necessity has driven every single one of Labour’s amendments to the private pensions part of the Bill and is at the forefront of our arguments today.
	We all agree that pension charges have to be reasonable for people to have the necessary confidence to invest their hard-earned money into pension schemes, but from the evidence available now it is difficult to exaggerate how obscure the charging structure for pensions is and how dysfunctional the market is. For reasons we have debated repeatedly in this Bill, the market alone cannot address this challenge. It is a regret that the Government have been slow to understand the depth of the problems in the pensions market and now appear reluctant to take on the industry to solve them.
	A short reminder of how we got to this better place of a cap on charges and disclosure of the detail of them is necessary. In July 2012 my right honourable friend Ed Miliband first raised this issue, identifying pensions as the next big scandal and warning that savers must be protected from hidden pension fees that
	strip them of huge percentages of their savings. He called for a new regime imposing a clear charging structure on pension funds and warned that fees needed to be capped. Disgracefully—and I use this word advisedly—the Pensions Minister joined industry voices who were then accusing my right honourable friend of “scaremongering”. Indeed, the Pensions Minister accused him of being “irresponsible”. In the lexicon of parliamentary language, scaremongering and irresponsible are quite high up the scale.
	There followed the publication of reports from independent bodies that corroborated the basis of Ed Miliband’s concerns and in September 2013 he announced at the party conference that Labour would support an OFT inquiry into the pensions industry, put a cap on pension charges and force pension firms to stop hiding their charges and the full impact of them. The Government’s resistance to this agenda was palpable. Even in January 2013 when the OFT inquiry was announced, the Pensions Minister, Steve Webb, was still maintaining his scepticism about capping pension charges. More investigations followed. The OFT reported and, in the words of the Minister in the pot-follows-member debate, its report showed that the pensions market was utterly “dysfunctional”. In October 2013, almost on the day of the Report stage of the Bill in the Commons, and forced to do so by the findings of the OFT report, the Government U-turned on setting a cap on the maximum charges that can be levied on savings in default funds and announced the launch of a consultation. Finally, Labour had won the argument on the issue.
	It is staggering that it has taken the Government so long when their own figures show that individual savers could be losing as much as £230,000 from their lifetime savings. The noble Lord, Lord Turner, in his intervention in the pot-follows-member debate, described in a very telling way the scale of the charges that can be charged, particularly on small pension savings pots. At this point, the Pensions Minister, Steve Webb, said that every passing month of delaying the introduction of pension cap charges,
	“means another bunch of people who might not get put into a decent-quality scheme”.
	I agree with him. In announcing the consultation and the choices for capping he quite deliberately attracted headlines that created an expectation that a cap would be introduced shortly, probably by April of this year and at less than 1%. In October 2013 he said, “Enough is enough” and in October 2013 it was enough.
	Shamefully, his resolve now appears to have collapsed in the face of lobbying by pension companies. Days after we debated these issues in Grand Committee, in his response to the consultation the noble Lord, Lord Bates, dangled in front of us the prospect of some positive response in the Grand Committee the next Thursday when the Minister would make a public speech. I remember the response of the noble Lord, Lord Lawson, to this. What did we get? He kicked the cap down the road for at least another year. Now insurance companies require at least a year’s notice of a potential cap during which—using the Minister’s own phraseology—countless bunches of people will not get into a decent-quality scheme. The effect of our Amendment 29 is simple. If the new expectation that
	this will be done by April 2015 means anything, the Government should accept that and commit to making the necessary regulations for the cap no later than the last day of that month.
	I digress for a moment. There has been a most interesting engagement between the noble Lord, Lord Stoneham, and the Minister over this issue—I am sorry, I mean the noble Lord, Lord German. The noble Lord, Lord Stoneham, always causes difficulties. The noble Lord, Lord German, who effectively speaks for the Liberal Democrats on these issues and must be very close to the Pensions Minister, had an expectation in the earlier debate that he would get a very clear assurance from the Minister that the cap would be in place by April 2015. He asked for that assurance in the pot-follows-member debate. The Minister used a very telling phrase. He said that the Pensions Minister was “strongly minded” to impose a cap. Everybody outside thinks that the Pensions Minister has decided to impose a cap because that is the impression that has been created. Later, in trying to get more specific answers from the Minister, he used various phrases including seeing this through in the life of the Parliament. Many of us have been at that side of the Dispatch Box and know the restrictions on Ministers in the use of language but we also know that the use of this language is decided to give flexibility. However, on this issue very few Members of your Lordships’ House want to see any flexibility. There is an expectation that this cap will be in place before the end of this Parliament and that expectation has been created, even if reluctantly, by the behaviour of the Government’s own Ministers.
	In summary, on one interpretation of this history it can appear that the Government, despite their constant reassurance, have been dragged kicking and screaming to this point, all the while apparently being prepared to put the industry’s interest before savers’ when push comes to shove. This is the last opportunity for your Lordships’ House to make it clear that Parliament has a different set of priorities which are in favour of the saver and not the industry. It can do so simply by creating a statutory deadline to compel the use of the power to cap, which the Government reluctantly put in this Bill by way of an amendment following the OFT report, on the date that the Government are creating the impression that it will be used by.
	I probably do not need to say this but I hope that the Minister will accept this amendment and if he does not I intend to test the opinion of the House. I am hopeful that right-minded Members of your Lordships’ House will want to put a marker down to show which side of this commitment they are on—to do this before this Parliament comes to an end or just to see it through before it comes to an end. I know how I will be voting.

Lord Turner of Ecchinswell: My Lords, I will speak in favour both of transparency as per the amendment from the noble Lord, Lord Lawson, and the Government’s amendment and also in favour of a clear commitment to a clear cap on scheme charges in line with Amendment 29 which also bears my name.
	As I have already said this afternoon, the issue of total charges is fundamental to what we are trying to achieve with this Bill. The Government’s paper on
	charges makes it clear how important they are. Figure 2 says that if you are a saver throughout your life and you pay a charge of 0.5% when you get to retirement you will have given up 13% of your pot in charges. If the charge is 1.5%—which to the ordinary person might not seem all that much higher—you give up 34%. The difference between paying charges of 0.5% and 1.5% is that you will be 20% worse off throughout the whole of your retirement. This is not minor, but absolutely fundamental to how we achieve good provision for people in retirement.

Viscount Eccles: Could the noble Lord be very kind and help me? Is he saying that the pot is a fixed figure and that therefore the percentage of charges has always to be related to the same end figure of the pot?

Lord Turner of Ecchinswell: Obviously, it is possible that with higher charges there might be a higher return, but many of the variations that we see in charges in the industry are for things that clearly will not produce a different return. One sees, for instance, a wide spread of charges for index funds, where one knows that there will be no difference. We also know that, on average, active management does not add a return above index funds: that is a very strong empirical result from a lot of analysis. While it is possible that with higher charges come higher return, in a great many cases that is not so. One thing pension savers would be wise to concentrate on is the charges they face, because that is one of the few things that they can definitively influence, whereas the gross return is a promise that may or may not be delivered.
	Those are the reasons that led the Pensions Commission to focus very strongly on the issue of cost and the variation of cost. We noted, for instance, that many people employed in the UK are in large trust-based schemes and already enjoy, on defined contribution schemes, total fund management charges of 20 basis points, 0.2%, or less. For those 20 basis points, they get fund management at the gross level quite as good as people paying 1.5%. If you pay 0.2%, by the end of your savings life, you would have given up only around 4% or 5% of your savings in the charges, which is probably about as low as we can get it, given the fundamental things that have to be done. Again, that is confirmed in the Government’s own consultation paper on charging, which illustrates that 10% of trust-based firms have annual management charges of 0.19% or less. That is possible, provided we get economies of scale, without giving up a significant choice of range of funds. However, at the other end of the scale, we noticed many SMEs were paying 1.5% and therefore, as per the Government’s consultation paper, losing 34%; or 1%, at which point you lose 24%.
	That is why, as I said earlier, the recommendations of the Pensions Commission covered not just auto-enrolment, to use the inertia power to get people to save, but the design of the scheme, to ensure that access at the sort of low costs already enjoyed by employees of large firms can be enjoyed by employees of small firms. That was the reason for the design of NEST, which was designed by looking at detailed cost analysis and working out at what level it ought to be possible to deliver a default fund and also at models
	from elsewhere, such as Sweden. We became convinced that it ought to be possible to deliver to all people the opportunity to invest in a default fund—probably an index fund—with all explicit end costs of 0.3%. A set of decisions were subsequently made that the cost would have to be 0.5%, which is what it went forward as in the NEST environment. That at least establishes a benchmark and means that people who invest in NEST are only giving up 13% of their end-of-life savings pot in charges.
	It is important that that should be the benchmark and that we have a charge cap. We know from the OFT’s and other analysis that this is simply not a market where the operation of individual customer choice is effective in driving cost-efficient competition. If that were the case, we would never have had to have the recommendations of the Pensions Commission and the auto-enrolment to which we are now committed. If we do not impose a charge cap, we will leave many savers, in particular lower-income people working for SMEs, facing unnecessarily high costs. I think they are unnecessary if, for a default fund, we are above 50 basis points, or 0.5%. I am therefore concerned that the two options the Government were looking at in their consultation paper on charging were 0.75% and 1%. If we come forward with a cap of 1%, we are giving to the ordinary saver the extraordinary promise that, on their behalf, we have made sure that their loss of pot at the end of their life is only 24%. I do not think that is a very compelling promise to give to people. I therefore strongly believe that we should make a clear commitment, by a clear date, to get on with this and have a charge cap in place, and that 0.5% is the appropriate figure.
	Although a price cap on explicit costs is important, it is not sufficient. That is why I strongly support the sentiment of the amendment of the noble Lord, Lord Lawson, which seeks to cover all the other costs which are not covered in explicit fund management charges. The issue of these other costs was also one with which the Pensions Commission was concerned. We were concerned that, beyond what you can see in an annual management charge for a fund, there are lots of other costs involved. These are precisely the sort of costs described in Amendment 28, in the name of the noble Lord, Lord Lawson, which inlcude,
	“fees and performance fees paid to investment managers … commissions and bid-offer spreads paid … fees, revenue splits and bid-offer spreads paid to custodian banks”.
	These are very significant but are not well understood.
	On the Pensions Commission, we sought to see whether research had been done on how big these were. Interestingly, there was one piece of research, which was sponsored by the FSA back in 2000 and written, after a lot of research, by a man called Kevin James. It tried to work out just how large these other costs were in the UK and in the US. We called them implicit costs in addition to explicit costs. There is a box in the first Pensions Commission report which explains that piece of analysis and how big they are. His analysis, which we interpreted, suggested that some of these costs might be as high as 90 basis points, on top of the overt, explicit costs. We ended up, for the purposes of modelling, believing that if we were to try to understand what got lost between the gross return on equities that you see by looking at the FTSE
	All-Share Index every year and what the saver gets, we had to allow, in addition to the explicit asset management costs, for 65 basis points on average going in these implicit costs—more for actively managed funds, less for index funds.
	It is possible that those costs have come down since that analysis was done and since we looked at it—there has, for instance, been some compression of bid-offer spreads—but they are sufficiently large that it is incredibly important to focus on them, pay attention to them and, as it were, bring the disinfectant of transparency to bear on this bit of the cost base. Let us suppose that they were 65 basis points. That means that if somebody thought that they were paying 0.85% on an explicit annual management charge, between the gross return on equities in the market and what they actually get, they would be paying 85 basis points plus 65 basis points, which takes us back to the 1.5% per annum, which is 34% of their pot disappearing.
	The noble Lord, Lord Lawson, has put an immensely important issue on the table. I would encourage the Government to widen their focus even beyond pensions, because it is important not only in the pensions arena but for the other ways that people save, for instance with ISAs. When people save in ISAs, they are looking at an overt, explicit asset management charge, but sitting behind that is a set of other hidden costs. This is an issue where more information will help. It will not transform the situation—we are deluding ourselves if we believe that lots of individual savers are themselves, individually, going to pay attention to this—but as the noble Lord, Lord Lawson, has said, the press, including the specialist press, will pay attention to it and a wider debate about just how large these charges are is very important. It would, for instance, be very interesting to start seeing how much higher these hidden costs are for actively managed funds versus index-linked funds, because that is a piece of information that people ought to bear in mind when they make those decisions between different classes of assets.
	I urge the Government, as they go forward with this idea, to look at whether that disclosure should in future apply not just to pensions but to a wider class of investments—to cast it, as the noble Lord, Lord Lawson, said, as widely as possible so that we capture all costs—and to see this as a start point of an extremely important debate in which we get a better handle on the total costs that are being imposed by the asset management and investment fund management industries.
	I do not think that transparency is an alternative to a charge cap, which is why I have also put my name to Amendment 29, but it is a very valuable additional tool.

Baroness Drake: I do not intend to make my contribution because I do not think there is anything I can add to what the noble Lord, Lord Turner, has said. However, as I have never been a Minister I am not familiar with the dark art of crafting ministerial syntax, so perhaps I could take this opportunity to ask the Minister a question before he responds.
	I have before me the Written Ministerial Statement, which says:
	“Last year, we consulted on whether to cap charges in the default funds of schemes used for automatic enrolment, and the
	Government remains committed to seeing this policy through during the life of this Parliament”.—[ Official Report , Commons, 24/2/14; col. 11WS.]
	My simple question is: does the phrase,
	“seeing this policy through during the life of this Parliament”,
	mean that the Government will introduce a charge cap before the election in 2015? A simple yes or no answer would be helpful.

Viscount Eccles: My Lords, I had not really intended to intervene. I have not played any part in this Bill since Second Reading, but I just want to draw attention to the fact that there is a difference, in my opinion, between price control and transparency.
	I am 100% in favour of transparency. Perhaps I should declare that I have a very complicated pension situation. I have been in defined benefit schemes and money purchase schemes and I have a SIPP. I have also been the trustee of probably half a dozen pension schemes. I have done transfers of people under TUPE in the Local Government Pension Scheme. So I have had a lot of reasons to worry about the amount of somebody’s pension fund that is absorbed by costs. I am totally on board with complete transparency on that issue.
	However, that is a different matter from price control. The problems in this market, which I fully agree has very considerable aspects of dysfunctionality, are created, in part at least, by the incredibly complicated structure of pensions that we have created, in both the public and private sectors, over many years. It is a very complicated subject and of course there are people who take advantage of that complexity, I completely agree. There are also people who are so frightened by the complexity that they do not know when they are getting value for money and when they are not.
	That is my point: there is a great difference between a market which by its transparency enables people to see whether or not they are getting value for money and a market in which there is price control. Picking a figure for the price control would be a very foolish thing for any Government to do.

Lord Freud: My Lords, this is a very substantial area and we are making very substantial moves. We are looking for transparency on all charges. We are looking to ensure that that is published. We are looking to make announcements on our capping plans soon. I enjoyed more than anything else the noble Lord, Lord Turner, teetering on the edge of giving investment advice, although I suspect he is privileged to do so here.
	I will quickly recap some of the language in our Amendment 26A. It says “some or all” rather than “all” for drafting reasons. We need to set out, as far as we can, in regulations what costs should be included but our intention is to include all transaction costs, which incorporates not just the transaction costs that my noble friend Lord Lawson made the point about but all costs, because we have permissive powers in the Pension Schemes Act 1993 to get all costs, not just transaction costs.
	As I said, before Third Reading we will look at whether to include the defined benefit schemes and we will come back to that.

Lord Browne of Ladyton: I am very grateful to the Minister for giving way. On this very point about the transparency of transaction costs, my understanding of the Government’s amendment is that they have given themselves the power to exempt from transparency where there are existing FCA rules in relation to transparency. The existing FCA rules on transparency exempt transaction costs, so how will the transaction costs in such cases be dealt with?

Lord Freud: I am putting it on the record that we will aim to capture all costs, including all transaction costs. As noble Lords know only too well, when you look into this legislation there are bits and pieces scattered all over the place, but I can summarise it in that very simple sentence. It is very similar to the point about proposed new subsection (6): it is just a drafting requirement that we do not overlay things and that we have a clear line. It is not to do with the EU.
	I am sorry that the noble Lord, Lord Browne, was concerned about my overconcentration on my noble friend Lord Lawson. I did not mean to do any airbrushing but I did mean to concentrate on the fact that I believe that my noble friend Lord Lawson’s amendments in Grand Committee and at this stage have been especially helpful in pushing this whole debate forward.
	Turning to Amendment 29 in the name of the noble Lord, Lord Browne, I would actually be very disappointed in the noble Lord if he was to decide to test the opinion of the House. I have been absolutely clear about the timing of government action. I do not understand why he would want to start stipulating in primary legislation the timing of when regulations would be brought, given the language that I am using to talk about what we are doing.
	Even though I may not satisfy the noble Baroness, Lady Drake, with the clarity of my expression, I will go through what we are doing. Consultations have sought views on policy implementation. Employers made clear that they wanted sufficient notice of any new scheme requirements. The Minister remains strongly minded to cap charges and, as former Ministers know and can tell the noble Baroness, Lady Drake, significant policy decisions must go through due process, but the Government response is coming soon.
	I hope that I have made it utterly, utterly clear what will happen. That is the reason that I do not want the noble Lord, Lord Browne, to test the opinion of the House, because that seems purely political, given what I have just said, and that is not in the spirit—

Baroness Hollis of Heigham: I think to the Minister for giving way. Do the words of the Pensions Minister in the other place, “strongly minded”, have the full, unambiguous support of HMRC?

Lord Freud: Yes. I do not want to go into the Lobby on this. I do not think we should; that is not the way that we have conducted the Bill, which we have done by information, support and debating the issues. We should not reduce ourselves to having a debate when we are saying exactly the same thing across the House. That is my request of the noble Lord.
	Amendment 25 agreed.
	Amendment 26
	 Moved by Lord Freud
	26: Clause 43, page 24, line 4, leave out “work-based”
	Amendment 26 agreed.
	Amendment 26A
	 Moved by Lord Freud
	26A: After Clause 43, insert the following new Clause—
	“Disclosure of information about transaction costs to members etc
	In section 113 of the Pension Schemes Act 1993 (disclosure of information about schemes to members etc), after subsection (4) insert—
	“(5) The Secretary of State must make regulations under this section requiring information about some or all of the transaction costs of work-based money purchase schemes to be given to some or all of the persons mentioned in subsection(2).
	(6) But subsection (5) does not apply in relation to a scheme of a particular description if—
	(a) as a result of another enactment, requirements are imposed relating to the disclosure of information about transaction costs of schemes of that description, and
	(b) in the opinion of the Secretary of State, those requirements provide an adequate alternative to what is required by subsection(5).
	(7) In this section—
	“work-based money purchase scheme” means a money purchase scheme that is—
	(a) an occupational pension scheme,
	(b) a personal pension scheme where direct payment arrangements (within the meaning of section 111A) exist in respect of one or more members of the scheme who are workers, or
	(c) a personal pension scheme which is or has been registered under section 2 of the Welfare Reform and Pensions Act 1999 (stakeholder pension schemes);
	“worker” means a person—
	(a) who is a worker for the purposes of Part 1 of the Pensions Act 2008, or
	(b) to whom a provision of Part 1 of that Act applies as if the person were a worker because of a provision of Chapter 8 of that Part;
	but for the purposes of paragraph (b), ignore section 92 of that Act.””
	Amendment 26B (to Amendment 26A) not moved.
	Amendment 26A agreed.
	Amendments 27 and 28 not moved.
	Schedule 18: Work-based schemes: power to restrict charges or impose requirements
	Amendment 29
	 Moved by Lord Browne of Ladyton
	29: Schedule 18, page 103, line 40, at end insert—
	“(1A) The Secretary of State must lay before Parliament regulations to restrict such charges as soon as reasonably practicable and no later than 30th April 2015.”

Lord Browne of Ladyton: I beg to move, and I wish to test the opinion of the House.

Division on Amendment 29
	Contents 165; Not-Contents 225.
	Amendment 29 disagreed.

Amendments 30 and 31
	 Moved by Lord Freud
	30: Schedule 18, page 104, line 24, leave out “work-based”
	31: Schedule 18, page 104, line 42, leave out “work-based”
	Amendments 30 and 31 agreed.
	Amendment 31A
	 Moved by Lord Browne of Ladyton
	31A: After Clause 47, insert the following new Clause—
	“Decumulation
	(1) Any qualifying money purchase scheme must direct its savers to an independent annuity brokerage service or offer such a brokerage service itself.
	(2) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing its members with—
	(a) an assisted path through the annuity process;
	(b) ensuring access to most annuity providers;
	(c) minimising costs; and
	(d) ensuring that information and support is available on alternative at-retirement products.
	(3) The standards meeting best practice on decumulation shall be defined by the Pensions Regulator after public consultation.
	(4) The standards set out in subsection (3) shall be reviewed every three years and, if required, updated.”

Lord Browne of Ladyton: My Lords, Amendment 31A, which stands in my name and in the name of my noble friend Lady Sherlock, proposes the addition of a simple clause to the Bill. The clause would require the provision of an independent annuity brokerage service or the offer of such a service to all members pending retirement. The clause goes on in later provisions to set out how best practice should be defined and maintained in the brokerage service offered to the retiring member or to which he or she is directed. It calls for an independent brokerage service to assist people to annuitise at the point of retirement. This is hardly a radical proposal. It fits the description of best practice and is what many employers with DC pension schemes already offer.
	The ABI code of practice says that providers should tell people decumulating that they can shop around and transfer the funds to another provider and advise them to seek advice before so doing. However, that is not enough. As Dan Hyde wrote in an article in the Telegraph in December:
	“The process starts with a ‘wake-up’ pack sent to savers months before their named retirement age, in which pages of often unintelligible information, packaged in unhelpful ways, baffle even the well-informed”.
	Of course, people can purchase their own independent financial advice but the majority do not retain or use independent financial advisers or accountants. A one-off appointment would be expensive—equivalent to a week’s take-home pay for workers on average wage—even if they knew where to go.
	Undoubtedly, employers’ firms can negotiate a better rate but the scandal of annuities is well known and widespread. In one sense, how often do we need to be told? Only last week, in yet another report, the Financial Conduct Authority confirmed again that the annuities market is not working and that it is disorderly. The number of adjectives that can now be found to describe financial services markets is interesting. The Financial Conduct Authority has ordered a further review but we need immediate action. Each week, more than 1,000 people are buying annuities and those transactions are irreversible. Once bought, you cannot change your mind and getting the right one can be the equivalent of an extra £1,500 in savings. With respect to the FCA, it
	hardly needs another competition market study to find out why consumers do not shop around. The problem is that the pension companies which sell them are simply not doing enough to explain to people that they can shop around.
	When this amendment was debated in Grand Committee the Minister used the same diversionary tactic as Steve Webb, the Pensions Minister, did in the Commons and as the Minister who responded to the Westminster Hall debate on annuities did too. Depressingly, I fear that the Minister can be expected to repeat that argument today. It is all very well to suggest that those reaching retirement age can do many other things—other than plan for an annuity—but it is insufficient, in the face of the continued mass selling of inappropriate annuities, to say to people that they have many different opportunities and need lots of different advice beyond annuities. The fact is that the variety in the annuities offered and the deals available is considerable. Those people—1,000 of them each week—need independent support and advice right now.
	The need for independent advice at this point may be obvious but the reasons for it are worth repeating. First, on the complexity of choosing the right annuity option, annuities are a complex product and decumulation is a complex process. Comparison between the providers is difficult. Before we debated this in Committee, I saw a quote for an annuity pot of only £30,000. In one short e-mail the following terms were contained: single life, level escalation, anticipated bonus rates and required smooth return rates—every single one of which was without an explanation. It offered four choices to a “conventional lifetime quotation” annuity described as income-choice annuity or with-profit annuity, and out of nine total options the rates varied between £700 and £1,400, with most around the £1,200 mark. It is no wonder, with such complexity, that no one should exercise a choice without advice; and so it is no wonder that over 50% of people just go with their existing provider.
	The first comparator website has been launched. This is a step in the right direction. However, the independent pensions consultant, Ros Altmann, who gave evidence to the Commons committee, did not think that it was simple. She said that it was disappointing and not easy to use. Annuities are complex products with multi-options and perhaps there never can be a simple comparison site.
	At this point I intend to repeat questions that I posed to the Minister in Grand Committee. They demand answers from the Government, to explain their resistance to this amendment, and they were not answered when we were in Committee.
	First, does the Minister accept that annuities are complex and that people need independent advice? Does he accept that purchasing that advice is beyond the grasp of most people, particularly those with no knowledge of investments? If he does so accept, how does he suggest that those who need this advice now can be guaranteed to get it?
	Secondly, the variety in the kinds of annuities offered and the deals that people can get is bewildering. The NAPF and others have said that annuitising with the pension scheme provider pays on average 20% less than shopping around. In effect, inertia, or being overwhelmed
	by the complexity of making a choice, is exploited by pension providers. Insurers are making excessive profits from purchasers failing to shop around. On “Newsnight”, Ros Altmann said that if you had an annuity with the worst performers you would have to live until you were 100 to get back just what you had paid in.
	Inertia, as I say, is a powerful force that results in excess profits for insurers. They penalise you, not reward you, for loyalty. Estimates suggest that £1 billion of retirement income is being lost to savers every year just by the force of inertia. The report of the FCA Consumer Panel—the FSCP—was published in December and made many points. I have drawn on these points before in debating this issue and I do so again because they are so powerful.
	First, the tactics used by insurance companies and brokers were “tantamount to burglary” of old-age pensioners. The report said that it is nearly impossible for pensioners to know whether they are getting a good deal. Pensioners are hit by excessive profits and exploitative pricing. Insurance companies are making 20 times more profits on annuities than any other financial product. As for poor returns, on a pot of £100,000 Clerical Medical offers £4,664 per annum while Reliance Mutual offers £6,111. Over their expected lifetime people would be just over £36,000 worse off if they made the wrong choice.
	As for opaque charges, brokers are incentivised to sell particular products; in some cases they make 6%, or £12,000, on a pot of £200,000. There are sharp practices with brokers shopping around, resulting in a referral fee from each. Many also have exploitative pricing; that is, they have sold a product for a fit person when they are not fit, or an adviser neglects to tell people of other products such as income drawdown because the profit margins are slimmer. Companies can make £35,000 profit over 25 years on a pot of £100,000. I have to say that that was the finding of the report, although the figure was denied by the ABI. The ABI has not, however, said what profit is made.
	As your Lordships will be aware, the Pensions Minister, Steve Webb, commissioned a review of annuities from the FCA which reported last week. To no one’s surprise, the FCA concluded that the annuities market was not working. It was “disorderly”, according to the FCA’s chief executive, and the watchdog’s report suggested that four out of five consumers could get a higher income by just shopping around. To many people’s frustration and disappointment, after this extensive review the FCA said that it would launch a further review, a competition market study, to find out what we all already know. Consumers will now have to wait many more months for this second-stage investigation before regulatory action of some description can be started. In the face of 1,000 people a week still making this irreversible decision, that is not good enough.
	People who have gone without, who have diligently saved throughout their working lives, are being systematically “burgled”, to use the FSCP’s word, by a profit-hungry industry and its associated sales force. Annuities are building up to be the next scandal and mis-selling crisis. The sector will not sort itself out. We need to strengthen the buyer side, and Parliament needs to take action on behalf of savers. If we do not sort out annuities we will undermine auto-enrolment.
	This proposed new clause, if accepted, will provide people with guaranteed access—or at least the offer of it—to an independent annuity brokerage service at the point of decision. It will strengthen the buyer side. Annuities are one area of pension policy where the buyer deals directly with the provider and makes choices. With independent support these choices will be better informed choices. Access to an independent service will protect savers from making poor choices that could reduce their income by up to 20%. This small step may help divert us away from the next financial mis-selling scandal—or at least protect Parliament from the criticism that it failed to act when presented with the evidence of the need to do so.
	I think that the information I have laid before your Lordships makes the case for the need to provide an independent annuity brokerage service, or at least the offer of such a service, to pension scheme members who are approaching retirement to help the member make wise choices. There are already 400,000 people annuitising each year, and this number will escalate from 2020 onwards when the impact of auto-enrolment starts to kick in. I again urge the Minister to accept the need for it now and in the future. I beg to move.

Lord Freud: My Lords, this amendment is identical to the one that we debated in Committee stage. I will confirm the government position for the record, as well as respond to the new points made.
	The Financial Conduct Authority has confirmed the Government’s concerns that the way the annuity market operates may be disadvantaging consumers. This may be—in the language of the noble Lord, Lord Browne of Ladyton—“tantamount to burglary”, and it clearly continues to be of great concern to the Government. We recognise that it is critical that individuals make the right decision about their retirement income, because some of these decisions are ultimately irreversible. However, the solution offered by this amendment is not the answer to a problem which I acknowledge.
	What are the Government doing? First, we are supporting the consumer to make a decision that is right for them. We are leading on and supporting a wide range of initiatives aimed at driving up standards among providers, providing guidance to trustees and educating members. The ABI code of practice is designed to tackle the worst of the inertia selling practices—for example, removing the application form from the pack. It talks about the three decisions that the consumer needs to make: whether they should retire now; what type of income is appropriate—it may be annuities, but it may not be—and telling the consumer how to get a better deal on the open market.
	Secondly, the new Pensions Regulator guidance sets out expectations for what trustees should provide for their members. Thirdly, the Money Advice Service is developing its services for people approaching retirement age. Fourthly, the National Association of Pension Funds has published a guide to trustees and employees about the benefits to scheme members of support at retirement and the range of options available to them on the open market.
	Those are just some examples of the initiatives that have recently been delivered under this Government. In addition, the noble Lord mentioned the Financial
	Conduct Authority’s thematic review of annuities and the fact that it has launched a market study on the annuity market. He did not seem to welcome that wholeheartedly but we are very pleased that the FCA has decided to take this step; it is this Government’s changes to the FCA’s objectives that have enabled it do so. HMT and the DWP are currently reviewing the broad range of available research and statistics on at-retirement options, but with emerging findings from the FCA we will have the evidence to inform any further action required.
	On the issue of independent advice, individuals already have access to free and independent information and guidance via the Money Advice Service and the Pensions Advisory Service. I need to pay tribute to the noble Baroness, Lady Hollis, who is a board member of the latter organisation.
	I come to the core of why this amendment is not the right response. Indeed, it is rather funny that the noble Lord was quoting examples of sharp practice, with brokers shopping around and not informing their clients of the income drawdown. This is the point about, “While there is a problem, this is not the solution”. Making annuity brokers the first port of call for all would simply create a captive market for one part of the industry without effectively adding to consumer protections. Annuity brokers, unless they are also FCA-regulated advisers, are not required to ensure that the product is suitable for the consumer. I must be absolutely clear on this point: this measure would not provide the member with regulated advice. The Financial Services Consumer Panel recently published a report identifying a number of risks for the consumer in going down the non-advised route.
	This measure would therefore push people down a brokerage route and could lead to the next mis-selling crisis, not help to avoid it, as the noble Lord suggested. The amendment as it stands would mean that people would be been pushed into receiving non-regulated advice and might end up locked into unsuitable products without recourse to the protections that regulated advice affords. Furthermore, the measure focuses almost exclusively on annuities; it makes reference to information on alternative at-retirement products, but it has to be recognised that annuity brokers are not necessarily impartial—they make their money if a member buys an annuity. Indeed, that is a point that the noble Lord made in his own speech.
	This Government’s position is that it is essential for people to understand all their options, not just annuities, and to work with relevant bodies to ensure that appropriate help is available. Clearly, our work is not complete. However, we do not believe that this amendment, pushing people down a single product path, is the right solution. We are committed to ensuring that consumers have the information that they need to make good choices and that the annuities market works effectively for consumers. It is ongoing work but we will continue to challenge the industry if there is no significant improvement. The Financial Conduct Authority’s review findings will be vital in that assessment.
	While I welcome the debate, which is clearly an important one, this amendment would not deliver what the Opposition actually want. It risks making things worse for the consumer. It would legislate to make
	annuities the foremost option for deriving a retirement income when this may actually not be the right route for many, especially those with small pots. It would put the responsibility for providing information to members solely in the hands of annuity brokers, leaving many without the protections afforded by regulated advice. As I said, if that is not a potential mis-selling scandal, I would like to know what is.
	I would like the noble Lord not to test the opinion of the House on this because he should not, and he does not actually want to push it.

Lord Browne of Ladyton: My Lords, I am grateful to the Minister. He failed when he played that card last time; he should have learnt.
	The use of the word “burglary”, which is not one that comes easily to a Scottish lawyer because we in Scotland have no such concept, is not mine but is from the FSCP’s report. The report which looked into this described such behaviour as tantamount to burglary. I deploy the word because it is evocative but also because it describes quite well what is going on.
	I am grateful to the Minister for setting out the Government’s ambition in this regard, which is far-reaching, complicated and, I understand, ambitious, but the scandal continues. While we discuss the complexity of all this and indeed add further complexities to it, 1,000 people a week, most probably through inertia, are buying annuities, many of which are tantamount to burglary of their savings. We are suggesting with this amendment that we must do what we can to try to stem that process, while all the other complex things that need to be done—I accept the detail and the challenge of that—can be done. The scale of the scandal demands a deep and wide perspective of responses; I accept that. However, there is something we can do about this. Given that these people are going down this path without independent advice, the purpose of the amendment is to get them access to that information and that service so that they can make choices.
	I now come, in just a few sentences, to the core issue that the Minister used as his principal push-back against this amendment. I suspect that he did not read all of the amendment carefully enough. Had he got as far as proposed new subsection (3), he would have seen that all this advice has to be best practice, defined by the Pensions Regulator after public consultation—a form of regulation—and that that process has to be subject to a continuing review. It was intended, in the flexible sort of way in which I have got used to this Government working, to provide a process of engagement, discussion and consultation that allowed best practice to develop in this area and to improve the performance of those people who provide independent annuity brokerage services. This is a model that I have learnt, in my time in your Lordships’ House, from the conduct of the coalition Government. I commend it to the Minister, I commend it to the House and I wish to test the House’s support for it.

Division on Amendment 31A
	Contents 131; Not-Contents 197.
	Amendment 31A disagreed.

Baroness McIntosh of Hudnall: My Lords, I need to announce a correction to the voting figures on the first Division this evening, which was on Amendment 23. The correct figures were Contents 210; Not Contents 251.
	Schedule 20: Pension Protection Fund: increased compensation cap for long service
	Amendment 32
	 Moved by Lord Freud
	32: Schedule 20, page 108, line 37, at end insert—
	“( ) A person credited with a length of notional pensionable service because of pension credit rights is to be treated for the purposes of this paragraph as having pensionable service of that length (in addition to any pensionable service that the person is treated as having under sub-paragraph (8)).”

Lord Freud: My Lords, in moving government Amendment 32 I will speak also to government Amendments 33 to 41.
	As noble Lords will be aware, we are proposing to change the compensation cap in the Pension Protection Fund to recognise long service in a scheme. The standard cap shall be increased by 3% for each year of pensionable service over 20 years. Schedule 20 contains most of the provisions needed to implement the long-service cap. However, some technical amendments are needed to reflect particular situations and I shall address them in groups.
	Amendments 32 to 34 deal with the identification of pensionable service for certain individuals—obviously an important issue, given that the long-service cap kicks in once a person has 21 years of service. For example, a person who has been a member of a scheme for 10 years has that amount of pensionable service. However, they might also have transferred into that scheme a pension built up in a previous employment. Where the PPF has deemed service, say 15 years, in respect of this transfer, these amendments will permit the two periods to be added together so that the individual will be treated as if they had 25 years’ service in total.
	Amendments 37 and 38 deal with a scheme in the process of assessment when the legislation commences, where the scheme applies for the decision not to transfer the scheme to the PPF to be reconsidered. While the
	application is being considered, the current cap will apply for the purposes of assessing the scheme’s protected liabilities.
	Amendments 35, 36, 39 and 40 are needed to clarify the scope of the legislation dealing with those who are in receipt of compensation when the long-service cap becomes law, for people sharing compensation and with benefits entitlements arising at different times. Amendment 41 is a minor correction needed to the current legislation.
	In Grand Committee, the Government tabled a new clause, now Clause 50, dealing with the compensation cap. As my noble friend Lord Bates explained at the time, the clause was needed to ensure that the legislation reflects the policy and current practice when applying the compensation cap separately to compensation based on benefits deriving from different sources which are payable on the same day—for example, where an individual has entitlement to a pension but also a pension credit deriving from a divorce settlement. Clause 50 has a retrospective effect so as to cover payments already made. However, it applies only to cases where the two benefits were payable on the same date.
	Amendment 41 is needed to provide retrospective cover in cases where compensation derived from different sources is payable on different dates. It modifies the relevant provision of the Pensions Act 2004 to allow us to bring forward regulations that have a retrospective effect, so that such payments already made in accordance with the accepted policy and practice are covered.
	Getting the long-service cap into legislation has been a long process, requiring amendments at various stages of the Bill, and I thank noble Lords for their patience. I beg to move.

Lord Browne of Ladyton: My Lords, on behalf of these Benches, I welcome these amendments. In doing so, I take the opportunity to ask for an assurance that entitlement to a pension credit secured by a spouse as part of a divorce settlement will not be weakened by any of these amendments. If the Minister is unable to respond immediately to that, I will be content for him to write in due course.

Lord Freud: My Lords, that position is not affected by these amendments.
	Amendment 32 agreed.
	Amendments 33 to 40
	 Moved by Lord Freud
	33: Schedule 20, page 109, line 6, at end insert—
	“(9A) Where a person becomes entitled to relevant compensation in respect of benefits under two or more connected occupational pension schemes at the same time, this paragraph applies in relation to the relevant compensation in respect of each benefit as if—
	(a) a reference to the length of the person’s pensionable service were a reference to the total length of the person’s pensionable service under all of the schemes (ignoring any period of overlap), and
	(b) sub-paragraphs (8) and (9) apply for the purposes of working out the length of the person’s pensionable service in respect of each scheme as if a reference to the admissible rules were to the admissible rules of that scheme.”
	34: Schedule 20, page 109, line 6, at end insert—
	“(9B) When applying this paragraph in relation to relevant compensation in respect of a benefit, ignore any pensionable service that relates to a benefit that is not from the same source.
	(9C) For the purposes of sub-paragraph (9B)—
	(a) benefits attributable to a person’s pensionable service under a scheme are from the same source as benefits attributable to the person’s pensionable service under that or a connected occupational pension scheme,
	(b) benefits under a scheme which are attributable to a pension credit from a transferor are from the same source as benefits under that or a connected occupational pension scheme which are attributable to a pension credit from the same transferor, and
	(c) benefits are not otherwise from the same source.”
	35: Schedule 20, page 109, line 13, at end insert—
	“( ) In paragraph 24(2), at the end insert “of the periodic compensation at that time”.”
	36: Schedule 20, page 109, line 16, at end insert—
	“In paragraph 18(2) of Schedule 5 to the Pensions Act 2008, for “the compensation cap” to the end substitute “a modified version of the compensation cap in paragraph 26A of Schedule 7 to the Pensions Act 2004”.”
	37: Schedule 20, page 111, line 37, leave out “sections 127(2)(a) and 128(2)(a) of the Pensions Act 2004” and insert “the following”
	38: Schedule 20, page 111, line 40, leave out “that Act.” and insert “the Pensions Act 2004—
	(a) any provision in which the definition of “protected liabilities” in section 131 of that Act applies, and
	(b) any provision in which the definition of “protected benefits quotation” in section 151(8) of that Act applies.”
	39: Schedule 20, page 113, line 3, at end insert—
	(1) In relation to a case involving multiple benefits, transitional provision made by order under section 55(8) may, in particular—
	(a) disapply or modify any provision of this Schedule;
	(b) make provision similar to any provision of this Schedule.
	(2) For these purposes, “a case involving multiple benefits” means a case mentioned in paragraph 26(9) of Schedule 7 to the Pensions Act 2004.”
	40: Schedule 20, page 113, line 3, at end insert—
	(1) Transitional provision made by order under section 55(8) may, in particular, make provision in relation to compensation payable under Chapter 1 of Part 3 of the Pensions Act 2008 (compensation sharing on divorce etc) that is similar to any provision of Part 3 of this Schedule.
	(2) Regulations under paragraph 18 of Schedule 5 to the Pensions Act 2008 which restrict an amount payable to a person in any period by reference to a modified version of the compensation cap in paragraph 26A of Schedule 7 to the Pensions Act 2004 (inserted by Part 1 of this Schedule) may also make provision similar to any provision of Part 3 of this Schedule.”
	Amendments 33 to 40 agreed.
	Clause 50: Pension Protection Fund: compensation cap to apply separately to certain benefits
	Amendment 41
	 Moved by Lord Freud
	41: Clause 50, page 27, line 16, at end insert—
	“(8) Regulations under paragraph 26(9) of Schedule 7 to the Pensions Act 2004 (modifications for cases where compensation becomes payable on different occasions) made in consequence of this section may be made with retrospective effect.”
	Amendment 41 agreed.
	Amendment 41A
	 Moved by Baroness Sherlock
	41A: After Clause 51, insert the following new Clause—
	“Review of provisions
	Within one year from the date of enactment, the Secretary of State shall, following the completion of a public consultation, lay before both Houses of Parliament a report assessing the impact of the provisions contained within this Bill on the following—
	(a) current and future recipients of the state pension;
	(b) members of private pension schemes;
	(c) women born between 6 April 1951 and 5 April 1953;
	(d) the level of knowledge among young people of state pension entitlement and private pension provision; and
	(e) such other matters that the Secretary of State for Work and Pensions and the House of Commons Work and Pensions Committee deem relevant.”

Baroness Sherlock: My Lords, Amendment 41A in my name and that of my noble friend Lord Browne calls for the Secretary of State to review and report to Parliament on the impact of the Bill on specific groups. I recognise that the department undertakes research, but this amendment picks up on something slightly different: the impact on specific groups about whom concern has been expressed during the passage of the Bill through Parliament, or where provision is in effect a work in progress.
	This is a major Bill that will have a significant impact on the majority of our citizens—indeed, on pretty much all of those who have yet to reach state pension age. If the Bill proves to be even half as good as the 1948 Act, it may be in place for a long time. The amendment calls for reviews of provisions made in the Bill to check that we have got it right and to enable us to make any necessary adjustments for those who are unfairly disadvantaged, or where provisions seem not to be working as we might have hoped.
	Paragraph (a) of the proposed new clause calls for a review of existing and future beneficiaries of the state pension scheme. When there are winners and losers we should review that to make sure that we have got the balance right. We should also include within the review an assessment of whether transitional arrangements are adequate and working.
	Paragraph (b) relates to the operation of private pension schemes. Given the debates this evening, I hardly need detain the House further by sharing our views on whether the private pensions system is working well; I think that we all know that there are challenges. Some of the changes that are needed, such as to the annuity market, may well need primary legislation, but many will not. The review will take the opportunity to look at whether the various changes, legislative or not, which the Government have made and promised, are working effectively.
	Paragraph (c) relates to the concerns expressed by many women born between 6 April 1951 and April 1953. I am sure that all noble Lords have had many communications from women in that category who are affected. In Grand Committee, the Minister was pressed by various noble Lords, including my noble friend Lady Hollis and the noble Lord, Lord Paddick,
	to be clear as to whether or not this cohort of women would be better or worse off under the new system. The assumption of the Government is that they will be better off, but I never got a satisfactory response to the question I posed in Committee as to why the Government think that women born between 1951 and 1953 are better off under existing arrangements, and yet also claim that women will mostly be better off under the new pension arrangements. I still do not quite understand how both can be right. The amendment asks the Government to report to Parliament on the actual impact of these provisions, rather than simply relying on analysis of what the impact is likely to be.
	Paragraph (d) focuses on the need for a review of the knowledge of young people of the system. Young people currently face a challenging work environment with high youth unemployment, the potential for high debts if they go to university and astonishingly high rents. We may safely conclude that, for most of them, concern about living in poverty in their dotage is not chief among their concerns, so a call to start contributing to an auto-enrolled pension may not ring loud. Yet that is of course the very best time to address those concerns.
	Better financial education is needed, coupled with information about the importance of providing in future for their retirement. We owe it to young people to encourage them to consider making pension provision as soon as they are able to do so. This amendment seeks to keep track of the Government’s strategy to ensure that our young people are armed with a greater understanding of the need to proactively engage with pension decisions.
	This is a far-reaching Bill and we should therefore make sure that we have got it right. Paragraph (e) of the proposed new clause recognises that the Select Committee, and indeed the Government, may identify other matters that should be reviewed and reported to Parliament.
	The principle underpinning the Bill is that people should have a state pension that is simple to understand and that they should take responsibility for saving for their old age through work-based pensions. We also need to have it acknowledged today that the state owes a duty of care to the large numbers coming under auto-enrolment. In light of the broad consensus that industry must improve its standards and reduce its charges, its progress towards that should be monitored by Parliament. The amendment sets out a method of parliamentary scrutiny to ensure that we have got it right and that the Pensions Bill will last us, as the Minister aspires, for decades to come. As there will be an election before enactment—and, of course, a change of Government, one hopes—the amendment is prudent. I recommend it to the House. I beg to move.

Lord Freud: My Lords, I do not think that anyone in the House can be under any misapprehension that the Government value extremely highly the role of evidence, analysis, consultation and evaluation in policy-making. Our approach to designing this once-in-a-generation package of pension reforms has been heavily informed by a robust and wide-ranging evidence base. However, looking at the text of the amendment and its
	timing, I must make clear that the provisions on the new state pension, and many of the other provisions in the Bill, will simply not have been commenced by spring next year—the time used in this amendment. Therefore, all that would come out of such an amendment would be a rehash of the information that has already been provided to Parliament: there would be nothing to add. We have no particular objection to this amendment in terms of sentiment, but its timing is just not appropriate.
	I will not spend a lot of time going through all the issues, which we have gone through in huge detail over the past weeks and months. However, I will touch on how we will monitor the impacts in the future and what the plans are. It is clearly imperative, as the noble Baroness said, that a set of reforms of this nature is accompanied by a strategic approach to monitoring at sensible intervals. I am not saying anything that noble Lords will disagree with when I state that pensions is a very long-term policy area, and that the impact of many measures will not be felt fully for decades.
	As a society we are asking people to do more to think ahead and plan for their retirement. As a Government it is our duty to do the same in looking at the retirement outcomes of the population as a whole. Our retirement outcomes framework, published in September 2013, provides an overview of projected future retirement incomes, looking at the impacts of government pension reforms as a whole and across state and private systems.

Baroness Hollis of Heigham: Perhaps the noble Lord could write to me if he does not have the answer at his fingertips. I respect his concern for evidence and policy base, but, as he will know, that depends on longitudinal statistics and their consistency. There has been quite a lot of dispute about threats to discontinue some of the longitudinal statistics which show households below average income, recipients of benefits, what is happening with pension credit, and so on. My noble friend Lady Lister, who is not here at the moment, has been concerned about that. Can the noble Lord write to us and tell us what series of statistics will be kept from the implementation of this Act, so that we can track, for example, the groups that my noble friend has mentioned—the 1951 to 1953 group—and what is happening to people who will lose their derived rights as married women, widows, divorcees and so on? What assurances can he give us about how we can be sure that we are in a position, if we need to be, to adjust policy because we have the information to hand?

Lord Freud: That is clearly a relevant and central set of issues, and it is quite technical. As the noble Baroness invited me to write, I will make sure that we produce a comprehensive look at exactly what these series are and what they will contain. I will be happy to arrange that.

Baroness Hollis of Heigham: Also, what if any future surveys does the Minister expect the Government now to engage in as a result of this Act coming into force?

Lord Freud: I am happy to make sure that we itemise those in a way that will help noble Lords keep an eye on what they need to monitor as we go along.
	We will update the modelling as evidence becomes available on the impact on work and saving of automatic enrolment, the single-tier state pension, and state pension age changes. As noble Lords will know, the department conducts a six-monthly tracking study of attitudes and behaviours in relation to pensions, later life and automatic enrolment. A similar exercise will start after Royal Assent, to monitor awareness and understanding of the reforms.
	We are committed to the principle of post-legislative scrutiny, but such scrutiny must have scope to provide insights beyond the impact assessment and consultation practices to which we are already committed. I know that the noble Baroness accepts the point on timing, but the timing of this amendment would not add materially to the powers of the Work and Pensions Select Committee. Indeed, there is an awkwardness about the timing, because it straddles the next election. However, we look forward to continuing to develop pensions strategy with that committee’s input.
	I know that the noble Lord does not appreciate my asking for the other side to withdraw this amendment and not press it to a vote, but that is the position I am in. Maybe there is more warmth to my request than there has been this evening.

Baroness Sherlock: My Lords, that would not be hard. I thank the Minister for that response, and I thank my noble friend Lady Hollis for pressing him for more detail on how this will be monitored in future.
	I am very grateful to the Minister for setting out the Government’s commitment to post-legislative scrutiny and for setting out his commitment to making sure that the impacts of the Bill are analysed carefully, and with the use of evidence. I will press him to do two things. The first is to give particular attention to the two groups mentioned by my noble friend Lady Hollis. The women born from 1951 to 1953 feel very strongly that they have missed out on something important with this. If the Government turn out to be right, and they are better off under the current system, it is important not just that the Government find that out but that they share that knowledge as widely as possible. If that is the case, those women will be reassured—and, if not, they have a right to know anyway. Can the Minister also look at the position of those who would have been affected by, for example, the removal of derived rights, and whether the transitional protections are working well for them?
	Secondly, as well as all the work that has been done to an appropriate timescale, will the Minister give some thought to how that might best be shared with the House? The proceedings have been very good as the Bill has moved through Parliament. A lot of issues have been raised—in this House in particular—and a lot of expertise has been brought to bear on this, and we have all learnt a lot from the process. Having done that, rather than have the results of it disappear into the department, marvellous as it is, it would be helpful if they could come back out so that we can all learn from that, both for the Bill and for future legislation. However, I will take his assent to those marvellous suggestions as read, and on the basis of that—and because he asked so nicely—I beg leave to withdraw this amendment.
	Amendment 41A withdrawn.
	Clause 53: Regulations and orders
	Amendments 42 and 43 not moved.

Care: Financial Services Industry
	 — 
	Question for Short Debate

Lord Lipsey: To ask Her Majesty’s Government what plans they have for the role of the financial services industry in funding care provision in the light of the Dilnot commission reforms.

Lord Lipsey: My Lords, I declare my interests as unremunerated president of the Society of Later Life Advisers and a member of the advisory committee of the Equity Release Council.
	The request for a debate on this was sparked by the publication on 21 January, jointly by the Department of Health and the Association of British Insurers, of a document called Social Care Funding: Statement of Intent. To be more accurate, it was sparked by the reporting of that document the next day in the Financial Times, which said that the statement meant that,
	“government hopes of early products covering the cost of long-term care for the elderly”,
	had been dashed. That was based on one conclusion of the report: it was unlikely that prefunded products to pay for long-term care would emerge, at least in the immediate future—that is, products that people had paid for during their working life. I am myself a journalist, but I am afraid that that really was news only to the FT. There have been no such products for a very long time, and they are even less likely in the light of the Dilnot cap on care costs. The fundamental reasons are very simple: they are supply and demand. From the point of view of companies providing them, they are very difficult policies to produce, because they require you to assess many years in advance how long people will live for, how long they will claim off the policies for and how much the cost will be. That is on top of all the usual problems of moral hazard with any insurance product. To put it technically, they are virtually impossible to price.
	Even if those products were on offer, who on earth will buy them? We know that people during their working lives do not much care to think about their last years of life. We know that roughly only one in three people go into residential care and are therefore most likely to benefit from prefunded products, and we know from talking to independent financial advisers that if you try to raise this sort of product with people during their working lives, they are not interested. They are interested in their pensions, yes, but not in care products. So they have never been a possibility and nothing in the Government’s plans has ever assumed that they were a possibility or were going to happen. If I were an insurance salesman, which thank God I am not, I reckon that I would have a better chance at selling heating to the denizens of hell than I would of selling these products on earth, if they existed. They are unsuitable and unsaleable—what is to like?
	The FT missed the real story in the account, which is that there are two classes of product that are saleable and suitable and would supplement the recommendations of Dilnot as interpreted by the Government. One is point-of-use products whereby, if I go into a home tomorrow, I can insure myself so that my care costs are covered, however long I live. The second product is the enhanced annuity—that is, I start off with one pension and then, as I develop greater care needs, that pension is enhanced. I want to say a word or two on each of those products, which are essential in complementing the Dilnot proposals.
	Point-of-use policies already exist. It is a small and specialised market, with about 7,000 policies extant and about 1,000 sold a year with three firms providing them. However, very few elderly people know of their existence. That is a point that I shall return to later—not, I think, greatly to the Minister’s surprise. They have a very important part to play in the Dilnot settlement. Dilnot caps costs at £72,000, or at least that is the story. But in reality, for many of the better-off people who go into a residential home it does not cap costs at £72,000 at all. They have to pay £12,000 in living costs on top of the £72,000 but, more importantly, that is £72,000 at the rate that a local authority will pay for a home. To cite the example of someone whom I know and love, who is in a home in Oxford that costs roughly £1,000 a week, she is marvellously cared for but the local authority will not fund £500 so there will not be £500 to count towards the cap. If she wants to protect herself so that she can stay in that home for the rest of her life, as she would like, one way in which she can ensure that is by buying one of the private policies. But Ministers have spoken rather with forked tongues about this. I do not mean the Minister here in particular, but Ministers from the Prime Minister onwards, who have tried to obfuscate the fact that the cap covers only the cost of a home at the rate provided by the local authority. Really, the Government have to come clean with the public about what the cap is so that they can protect themselves, and know that they need to protect themselves, if they wish to.
	On care annuities, the Government have a bigger role to play. There are a lot of difficult issues here. For example, there could be tax difficulties. If you have an enhanced annuity that raises your income to a level where you are paying higher rate tax, that would be quite a difficulty. Indeed, the tax situation on these annuities is not altogether clear, partly because the Inland Revenue likes to ensure that annuities are taxed. Although they are allowed to rise in line with prices, they are not necessarily allowed to rise in line with needs. The Government have more work to do before those policies can be safely marketed, sold and developed as they should be to help people as their needs grow.
	I conclude with two final sine qua nons—I am sorry, that is naughty. I have used two Latin tags in one speech, but your Lordships’ House will forgive me if nowhere else will. Those sine qua nons must be met if the financial services industry is to fulfil its potential as a complement to the post-Dilnot world and not as a substitute for the government cap or assuming that the Government will pay for everything, which is the world that we are, thank God, finally leaving.
	My first point concerns regulation. I am afraid that I could speak for a long time on that but, fortunately, this is a time-limited debate. In particular, I am not convinced that the standards required of independent financial advisers operating in this field are sufficiently high. Too many advisers sell too much on the basis of too little knowledge. The standards are simply not high enough. I exempt, as of course I would, SOLLA-qualified advisers, who are very fully trained and equipped—but others are not.
	There is also a worry that needs a good deal of thought, and I do not have the solution to this one yet. There is something about in the industry that I would call the fear of FOS—the Financial Ombudsman Service. Many advisers who could play a very useful role for society and themselves by getting into this business are frightened that, although they sell the policies reasonably honestly, they will be found to have mis-sold them by FOS and will be forced to pay huge amounts in compensation. That is something that the Government need to look at, to see if any reassurance can be provided if we are to have the advisers available to provide the advice that people need.
	The second sine qua non is the provision of information from the Government about precisely what the scheme does and does not offer as well as what it remains for individuals to provide for themselves. Does that make three Latin tags? On the subject of information, we made very good progress during the passage of the care Bill, and I thank the Minister and his ministerial colleagues for being so open-minded about this. The Government are committed to a national information campaign and to monitoring progress in public understanding, as well as to obliging local authorities to play their part in what we hope will emerge as a holistic system of advice and information. But the devil lies in the detail. I think that it is on balance right that the detail is not in the Bill, but getting the rules absolutely right is essential and giving local authorities the resources that they need to fulfil their advice functions is also essential.
	There are also in the advice field complexities entirely of the Government’s own making. It is absolutely crackers to have one date on which the deferred payment scheme is introduced, whereby people do not have to sell their house, and a quite separate date when the Dilnot scheme comes into effect. Can noble Lords imagine how in that intervening year a financial adviser is to explain, let alone provide sound advice, to a client? It is simply impossible. What happens if someone comes to him a few weeks before the new benefit rules come into effect? Does he tell them to take out a deferred payment or not, when that benefits scheme may pay a lot of those costs? This is simply mad. The Minister will be glad to hear that if he agrees to reconsider his policy on this—and I hope that he will discuss it with his colleagues—the Government would actually save a bit of money.
	I conclude as I began. The private financial services market has an important role to play as a supplement to Dilnot and providing a holistic system of support, particularly in helping people who have saved hard all their lives to make sure that they protect the assets that they wish to leave to their children. However, although
	we have passed the Bill and it is passing through another place, there is still much work for the Government and the industry to do if it is truly to fulfil that potential.

Baroness Gardner of Parkes: My Lords, I am delighted to join in this discussion, particularly as the noble Lord, Lord Lipsey, has made many important points. I am glad to hear that he is on the Equity Release Council’s advisory board. Equity release is something people know very little about; they are suspicious of it and distrust it because they do not understand it. Equity release schemes will have to prove themselves if they are to satisfy people.
	I first debated a cap in connection with care costs years ago and I think that the relevant figure at that time was less than £10,000, which shocked me a bit. Even now it is less than £24,000, so it is appropriate that Dilnot has proposed a much more realistic figure for our times. However, a great difficulty arises as regards financial products and older people. In earlier times, older people could get a bridging loan from their bank. Now it does not matter what your assets are, the banks will give nothing at all if you are over 75, and some banks will not give anything to people over 70. They do not want to know you if you are in that age group. They will give you a loan if you want to buy something to rent but, if you want to use the money to cover your own future needs, despite the fact that they can easily recoup it from the sale of the property when you die, they do not want to know.
	In many parts of the country, particularly London, many elderly people are capital-rich but have only a very small income. If they wish to remain in their own home, they have to find a means to raise money. At the moment, equity release or insurance seem to be the only two available options. Kensington and Chelsea is cited as having more people who have lived in their home for more than 50 years than anywhere else in the UK. When I came to London, I rented a flat near Portobello Road. The porter of the block lived in a small house in Portobello Road. Those houses were selling in the 1950s for £750. As a sitting tenant, the porter was offered his for £450, which, sadly, he could not afford. Today, those same houses are selling for well over £2 million. If a mansion tax is introduced, the residents will be liable for that tax. Tremendous social upheaval would be caused if people who have been in their house for 50 years suddenly have to find ways to release cash in order to stay there. I have asked equity release organisations whether those people could use equity release for that purpose and was told that they could. However, if they do so, there will be less money available to pay for their care. Moreover, the relevant bodies are willing to provide only a certain amount given that risk is the big factor in all financial transactions now. Everyone wants to avoid risk and we want to be sure that the banks are sound. They are risk-averse, so the whole thing is very difficult.
	As I say, the public do not know enough about equity release, and regulation is very important. I was interested to hear the comments of the noble Lord, Lord Lipsey, on regulation. There are good regulations in this field—for example, the regulated home reversion plans, sale and rent back plans and home purchase
	plans. The ombudsman scheme to which he is referred is, I am pleased to say, free for the complainant, which is important. People are still a bit rattled by what happened at the Co-op, which everyone had thought was so sound. However, the regulator regulates standards of behaviour, not of pricing. We need to be sure that equity release does not end up like the payday loan scheme and rip people off in a big way.
	The Financial Services Authority was replaced in April last year by the Financial Conduct Authority and the Prudential Regulation Authority, so a lot of these matters are still regulated, but are the Government satisfied that the systems in place are sufficiently hands-on to cope not only with existing problems but those that might arise when the schemes to which I have referred get going?
	I meet people who bought their flats years ago in what were then council blocks—some, indeed, who did so in the days of Mrs Thatcher. Obviously, the value of those flats has increased hugely over that time. However, when the right to buy council flats was introduced, purchasers had the right to sell their flats back to the council if they needed money. The councils were happy to buy those flats as it cost them less to do that than to build new ones. However, no such provision is available now. The flats have all been farmed off to housing associations and housing organisations that operate schemes for the local councils, which has made life much more complicated. I hear of people who are on a pension of £170 a week but are required to pay their share of roof repairs costing £12,000 or £13,000, which is more than their income, so these issues are difficult to assess. It is tremendously difficult for people to assess whether or not they can afford to meet the costs of their care, their daily living costs and the costs of staying in their own home. Furthermore, elderly people in particular know their way round their own property and are safer in their own property than when they move to another one. People do not fall down and break a hip in a place they have lived in for years; that happens in the new place they move to. Therefore, if people do not require full-time residential care, there is great merit in staying in their own home.
	I suggest that we need a free, independent advice service. However, that is no good unless skilled staff run it. It is useless if people think that they are getting good advice only to find that the person to whom they are talking knows less about the issue than they do themselves. This issue is a huge project for the future. The Government cannot think that it is resolved, all sorts of problems will come up that we do not even envisage now. The financial services can, and should, do a lot more in this area and should adopt a positive approach. It is a difficult situation as anyone running a financial services organisation is torn between satisfying the Government that they are risk-free and have plenty of spare capital, and satisfying the people who would like to avail themselves of funds from a reliable source, who then find the whole issue is much more complicated than they thought.
	I am told that there is far greater confidence in the equity release market at present. Recent figures indicate growth of 12% since last year, with £473 million of housing wealth unlocked in the first six months of last
	year. There is currently £251 billion tied up in home equity that could be released under equity release products. That is interesting and the release of that money makes sense, but only if it can be handled in a sound way that protects the consumer and helps people. I think that the Government support the Dilnot report, and I certainly strongly support it. We want to see it come into force and benefit people.

Baroness Brinton: My Lords, I congratulate the noble Lord, Lord Lipsey, on securing this important debate that joins together progress in health and social care for the elderly and how our financial services can help deliver this from 2016—two years’ time—in the wake of the Dilnot commission reforms.
	The rising cost of care, however, has become an increasingly worrying issue. Two years ago, the commission estimated that the cost of the reforms was approximately £1.7 billion. Inevitably with an ageing society and limited resources, the state does not have sufficient funds to meet the increasing demand of social care for the ageing and disabled population. As Bruno Geiringer noted,
	“with demand for older people’s social care expenditure currently touching £8 billion and actual spending sitting at around £7.25 billion, the gap between supply and demand is alarming”.
	In 2011, the amount spent on care and support was 1.2% of GDP. However, in the same year, the figure was estimated to rise to 1.7% of GDP after the implementation of Dilnot.
	As we have heard from other speakers, currently, individuals are meeting costs by drawing down equity from their housing assets, purchasing insurance, or taking from their pension funds. Where they do not have access to these sources, many have to sell their property, while still alive, to fund their nursing care, but, frankly, this is such a hard decision at a very difficult time in people’s lives as they face reducing their independence and losing their home. It is evident that there is, or will be, a market for the financial services to support the older generation. With a cap on the individual’s lifetime contribution, this can be much more clearly defined than under the present system.
	The challenge is that the financial services industry must take greater initiative in funding these reforms. Several key financial products, some of which have been mentioned, are possible sources of funding. The disability linked annuity works by reducing the income of an otherwise flat annuity, but then doubles or trebles the income once care is required. In marketing this product, customers need to be aware of the tax treatment of annuities because they are treated as pay as you earn under current pension taxation rules. The second source of funding is products linked to housing assets. Many people fund their social care by utilising a portion of their housing equity to meet costs by either downsizing or taking out loans that are secured on their house, payable on death. The third source is linked to insurance. There is an opportunity for critical illness or life insurance policies to cover care costs. Similarly, top-up insurance can also assist individuals in the amount they spend on general living.
	However, no providers currently offer pre-funded insurance, mainly because there is a lack of demand for it. This is why pre-funded insurance products have failed in the past, and consequently are no longer available on the market. However, such products could fit the new profile needed to fund social care in the future. I ask the Minister, if these insurance products are indeed beneficial in covering care costs, how can the Government help the industry stimulate demand for the products? A potential alternative to the previous options is a deferred payment scheme. Under this, people could pay insurance fees after they have died. This works by taking a portion of an individual’s life insurance and applying it towards paying for care fees.
	Despite the potential of these products, there are many concerns that have been raised by both the Dilnot commission and the Government. As I have outlined, some products exist but face low take-up due to demand-side barriers, including reputational issues, a lack of public awareness, and the cost and complexity of the products. I am sorry to say that reputational issues have led to a loss of trust by many people in financial services. Research conducted by the Chartered Insurance Institute in late 2010,
	“found that one in five respondents will never trust financial services again and 72% of people have not very much trust or no trust at all in financial advisers and life insurance providers”.
	The most serious problem is the lack of awareness of social care costs. In several consumer surveys it was noted that most individuals do not know how much they will be paying for care in old age. The Local Government Association says that it found in a survey that,
	“63% of individuals wrongly estimated the average cost of a care home as less than £25,000 per year”.
	It is imperative, then, that we address issues related to engagement barriers in an effort to encourage people to seek private sector solutions. We must increase marketing for the products and raise awareness on the amount that people are likely to have to pay in future for their social care. This must start early. Worrying about it when you are 55 is, frankly, too late.
	The Government have already established an expert working group that will involve the Government, the financial services sector, local authorities and the care sector. It is exploring ways in which individuals can best be directed to truly independent financial advisers, and will build links with pension benefits and other services. However, it is shocking that out of 53,000 self-funders in residential care only 7,000 received financial application advice in 2009. This may be a possible explanation as to why one in four self-funders ran out of money and sought help from the state. Clearly, there is a necessity for the support of financial industry in the form of products and advice. The Department of Health expects the financial services industry to respond by 2016. However, that is only two years away and most financial products take between five and 10 years to design before they come to market, let alone general take-up. I therefore ask the Minister, if this is the case, then where are these financial products and where is the early launch of information and advice to reassure the public on the adequacy of these financial options?
	To conclude, there are too many individuals unaware of the social costs related to healthcare and the ability of financial services to help them finance costs. Although there is broad consensus that action needs to be taken, there is also a real fear that the commission’s recommendations could be left to rot because of the lack of products. This issue must be dealt with now because the financial services industry has the potential to minimise the full-scale effect of these costs on the lives of the ageing and disabled population. Equally importantly, it will remove the lottery of how much people have to pay for their social care, which has been a scandal for years.

Baroness Greengross: My Lords, I add my congratulations to the noble Lord, Lord Lipsey, on securing this debate and pointing out so much that still needs to be done to fulfil the potential of the Dilnot recommendations. While we all regret the fact that it does not seem that long-term care products will be available for some time—perhaps that was predictable and perhaps we all knew that—we have been encouraged by the Government’s decision in its Care Bill largely to accept the Dilnot commission recommendations for a cap to be created for an individual’s lifetime contributions towards their social care costs. That represents an important starting point from which new care funding solutions can begin to emerge.
	An important outcome from those reforms for the industry would be the long-term stability and sustainability of the social care funding framework. A stable state framework should give consumers the confidence to invest in solutions to pay for their share of care costs. It will also have a positive impact on providers’ willingness to enter the market. However, much of the detail around the operation of the cap, in particular the modus operandi of the benefit eligibility criteria, as the noble Lord, Lord Lipsey pointed out, will be clear only when the promised guidance finally emerges from the Department of Health. It would be helpful if we had a better idea about the timetable for the appearance of that guidance.
	The legislation itself will not deliver a new care funding option unless it first creates the right environment in which new markets for care funding products can develop. Accordingly, I warmly welcome the new statement of intent between the Association of British Insurers and the Government. That is an important step in the process of helping people to plan and prepare for the costs of long-term care. From my perspective, an important element of that statement is the declaration that there will be a joint initiative to raise public awareness of the reforms in advance of 2015. In the absence of such an effective information and education campaign, possibly run in conjunction with a campaign on pensions awareness, low consumer understanding about the realities of care funding—as the noble Baroness, Lady Brinton, pointed out—will continue to reduce the demand for new care funding options, which the financial services industry could potentially develop products to meet.
	Currently, for those who can afford them, immediate needs annuities are the only products dedicated to care fees funding. These guarantee an income for life to
	fund care costs in return for a one-off premium. In the continued absence of any form of pre-funded long-term care insurance products, it is to be hoped that products such as disability-linked annuities and vehicles that combined care insurance with other protection insurance options—the so-called care conversion and hybrid protection products—will emerge. We should do all we can to encourage such innovations.
	Unless local authorities, as part of their mandate to establish a competent local information service, have effective processes in place to refer future consumers—who are already emerging and may require appropriate regulated financial advice—perhaps to members of SOLLA, who are reliable and can give them the correct information, not only will the information programme be wasted but many consumers will not get the outcome their sensible considerations and planning merit. Some reassurance from the Minister on both the information programme and service would be helpful. I hope that he can give that assurance to us.
	For people with property assets, one of the routes to funding care fees that emerges may be based on the current equity release products, as we have heard. For example, only yesterday the think tank Demos launched a research report which explored the possibility of helping customers to ring-fence a proportion of their housing equity to help them to meet their long-term care costs in later life. It is also important to remember that, while the proposed extension of local authority deferred payment schemes is positive, these are complex financial arrangements with long-term consequences. In many ways they are very similar to fully FCA-regulated equity release products but without the accompanying consumer protection and redress features.
	Therefore, first, an information and advice campaign must be aligned with that on pensions; secondly, the guidelines should be consulted upon, and eligibility criteria and the level of need should be thought about again—it is really important that we build in some protection for people—and, thirdly, eligibility criteria should, I think, be national rather than local so that minimum standards are guaranteed and could be exceeded locally but not lowered.
	The older population has within it people of all different shapes and sizes with different aspirations and needs, and a one-size-fits-all solution is inappropriate. I end by echoing the aspirations of the statement of intent, in that all of us must continue to work together to help people to better plan, better prepare and better save for care costs. We must spare no effort in seeking to identify the best care funding solutions for all our different people of all ages and backgrounds.

Lord Hunt of Kings Heath: My Lords, I, too, thank my noble friend Lord Lipsey and the other noble Lords who have spoken in this highly informed debate. It takes us back to our debates on the Care Bill, which is still subject to deliberation in the other place.
	My noble friend referred to the statement of intent and to the difficulties that the industry has encountered in producing policies, for the reasons that he set out.
	We have studied the statement of intent with care. I noted that the introduction refers to the following fact:
	“In March 2013 the Department asked the major firms and trade associations in this field to undertake a review of how the market could develop. This reported back in July 2013 and is being published today”.
	No one admires more than me the Department of Health but it does seem to have taken rather a long time for this to have been reported. I should have thought that it would have been more helpful to noble Lords if it had been reported when we were considering some aspects of the Care Bill.
	The essential point of the review was that,
	“there is currently a lack of demand for products and that new products might initially reach only a small market”.
	Shock, horror in the Financial Times—but I do not think that my noble friend was surprised. As he said, he does not really hold out much hope that there will be a market in the future in the way that noble Lords have been talking about tonight: first, as he said, because of the difficulty of pricing products due to the uncertainties in the years ahead, and, secondly, because of the reluctance of most of us to buy those products even if the industry were certain of being able to put them on the market. I should be interested to know whether the noble Earl agrees with my noble friend’s analysis or whether he is more optimistic. If he is more optimistic, then why?
	However, my noble friend pointed to what he described as two saleable products: first, point of use and, secondly, enhanced annuities. He felt that those were essential to underpin the Dilnot proposals. I do not want to go over old ground but I agree with my noble friend and other noble Lords that the real problem for us is that, while we obviously welcome the foundations laid in the Care Bill, the fact is that it does not really produce what we originally thought it would—a clear cap that people can understand. We have the £72,000 cap but, in reality, we know that it is much higher. There is the £12,000 per annum living cost and there is also the fact that the £72,000 cap is related to what the local authority will pay. We know that private funders pay more than that, and there are many suggestions that private funders are subsidising people funded by the local authority. Whether that will survive the transparency that will come in a few years’ time, I very much doubt. We argued and debated this when we discussed the Care Bill.
	I know the nursing home that my noble friend referred to because my mother has instructed me that, if she has to go into a nursing home, that will be the one to which she goes. She sized it up and everyone in Oxford knows that it is a very good nursing home. However, £50,000 a year—£1,000 a week—is much higher than the local authority will be paying for the people for whom it will be responsible. Therefore, in essence, the cap will be much higher than £72,000. I agree with my noble friend that the Government need to come clean on this. We will not get the certainty that is required or achieve the required literacy among ourselves and other people unless it is clear what the likely liability is going to be for many of us and our relatives.
	My noble friend raised two further points. The first concerned regulation. He is not convinced that the standards required of independent financial advisers are sufficient. This is worrying. Noble Lords will have received very interesting briefings for this debate from the Equity Release Council and the Just Retirement organisation. The Just Retirement briefing refers to polling that it commissioned, conducted by YouGov. It found that when individuals were asked where they would go for information or advice on how best to pay if they needed to organise professional care, one in five chose their local council, a similar number chose a CAB and almost a fifth said that they would go to the National Health Service—I am not sure whether that is advised, but there we go.
	However, interestingly, the poll also revealed that when people were informed that they would face a large care bill before reaching the cap, almost two-thirds recognised the need for professional financial advice. That is encouraging as long as we can be sure that the independent professional advice is of a high order. I share my noble friend’s concerns that this is very variable, and I am not sure that the regulatory context in which those providing the advice operate will deliver the goods.
	The second point that my noble friend raised comes back to being clear about what people are liable for. There are continuing concerns about the role of local authorities in this and their capacity to deliver. I am still concerned about their ability to undertake assessments when the new clock starts, and I have not been convinced that local authorities really do have the capacity to do the job effectively. However, that then raises the question of the nature of the very welcome campaign that the Government, as a result of our debates, have agreed to.
	A national public awareness campaign is very important, but it has to be done with effectiveness and vigour. I wonder whether the noble Earl will be able to say a little more about how the campaign is going to be organised, what the budget will be, when it will be launched, how long it will run for and what partner organisations his department will work with. I refer him again to a poll by Just Retirement, which found that nearly one-third of those aged 55 and over believe that councils pay most of the cost, with individuals topping up the rest, while 40% believe that individuals pay most, with councils topping up the remainder. Many, many people do not understand the liabilities that they will face. We need to do everything that we can to ensure that people understand and can get proper advice, and we need to ensure that where the insurance market has a role to play, that role will be as effective as possible. This debate, although very short, is very important if we are to go forward with confidence in terms of Dilnot and the many liabilities that people are going to have to face in the future.

Earl Howe: My Lords, I begin by thanking the noble Lord, Lord Lipsey, for raising this very important issue. I thank equally all speakers for their contributions to the debate. The noble Lord, Lord Lipsey, and I have conversed many times of late
	on the Floor of the House about the provisions of the Care Bill, so I am in no doubt that he is very well acquainted—perhaps more than most of your Lordships—with the recommendations of the Dilnot commission on the funding of care and support. However, for the benefit of others who may not have been following as closely, I will take a moment or two to refresh our memories.
	The commission found that the current system is simply unsustainable and not fit for purpose. We need to ensure that we have a system that is sustainable and that people do not face catastrophic care costs. This is what the reforms we are introducing will do. The commission defined a new model for funding care and support—a new partnership between the individual and the state. It suggested that where individuals can afford to contribute they should do so but that it was simply not fair to expect people to spend their lifetime savings meeting the cost of their care. To address this current imbalance we are putting in place a cap on care costs, as recommended by the commission, to provide people with an insurance against catastrophic costs and the fear and worry that these can bring. We are also extending the means test and, as a result, we will be giving 35,000 more people means-tested support with their care costs immediately when the system comes in.
	These are all ways that the state will be providing additional protection. However, we must remember that what the commission described was a partnership, and there are at least two sides to every partnership. It recommended that where they can afford to do so, individuals should also contribute. It is just as important, perhaps even more so, to make sure that we are providing individuals with the support they need to meet their contribution. We as government are providing flexibility through the introduction of the universal deferred payment scheme and additional support through the new Clause 4 duty on local authorities to provide financial information and advice. I shall say more about that in a moment.
	We cannot, however, do this alone. The financial services sector needs to provide some support, too. The noble Lord, Lord Lipsey, recommended Ministers to go away and think about a postponement of the deferred payment scheme. I am sure he would agree with me that the deferred payment agreements perform a very important function and are one of the ways in which people can pay for their care more flexibly. Local authorities, as he is aware, already offer deferred payments. That gives me grounds for believing, and indeed having confidence in believing, that they have the ability to implement the universal scheme in April of next year. Given the fundamental function that these deferred payment agreements will fulfil, I am very hesitant, if not reluctant, to consider delaying the universal scheme. However, I will convey the noble Lord’s views to my honourable friend Norman Lamb.
	I should like to address the precise question placed before me by the noble Lord, Lord Lipsey. He asked what plans the Government have for the role of the financial services industry in funding care provision in the light of the Dilnot commission reforms. My straight answer to that question would need to be that we have no direct plans because the industry is independent of
	government and, as such, we have no control over what it does. We cannot compel it to play any role, however much we might like to. I cannot say what plans we have, but I can tell the noble Lord about the joint work that we have been doing with the industry, our shared ambitions and our commitment to continue this joint working—a commitment, incidentally, reinforced by the briefing issued by the ABI ahead of this debate.
	In March 2013, the Department of Health invited companies from the financial services industry to conduct a review of financial products to fund care—the opportunities that the Care Bill would provide and the barriers that needed to be overcome for it to flourish. The review reports were published on 21 January this year, alongside a joint statement of intent between industry and government, where we both committed to working together on this agenda. The industry-led review told us that the introduction of the Care Bill reforms would largely give us the right conditions for a market of care products to emerge. I do not think we should overlook the importance of that finding. Further, the reports confirmed that industry saw itself as able to play an important role in helping people to plan for their care and support needs—again, a sentiment reinforced by the ABI in its briefing yesterday.
	However, that does not mean that our job is done. We need to be realistic about what we might expect, and when. More work needs to be done and there are some barriers to overcome if we are to see this market take off. Again, I have no need to familiarise the noble Lord, Lord Lipsey, with some of those barriers. Indeed, he has spoken of them in the debate. Public awareness of how care is funded is woefully low. We need to build an understanding, a greater awareness of how the system works and the need for people to plan and prepare for future care needs—something that the Government have already committed to do. My noble friend Lady Brinton asked how demand for financial products could be stimulated. We need to make sure that there is good information and advice to support and enable people to make well informed decisions about the types of care they want to receive and how they can pay for it—something that we will ensure happens through the new information and advice duty on local authorities.
	To be successful, an awareness campaign needs to be delivered in partnership—national and local government working alongside the wider care sector. We are already working with partners to develop the right approach. I can tell the noble Baroness, Lady Greengross, that we have already embarked on a joint programme with local government to implement the care and support reforms and that awareness raising will be an important part of this. The department will co-ordinate the messages to ensure that a simple, coherent campaign can be delivered nationally and locally. We are engaging with the voluntary sector, care providers and the financial services industry to make sure that we can all play an effective part in communicating these reforms. The noble Baroness, Lady Greengross, emphasised the need for stability in the sector in the way these reforms are implemented. If we combine our efforts and maintain cross-party support for these reforms—which I hope and believe we can—we can ensure that this happens.
	We want to see products developed and in that process we need to consider whether this could be aided by regulatory change, which was also mentioned by the noble Lord, Lord Lipsey. The department has already opened up the lines of communication between industry, the Treasury and the Financial Conduct Authority to explore this issue further.
	As to being realistic about what we should expect, I want to be clear that I do not expect a big bang moment where financial services companies across the country release hundreds of new products. I want to see a sustainable market develop, with products which are designed to meet the demands of customers. These developments will be incremental and are likely to take some time. That is emphasised in the ABI report, which states that it will take a much longer period of time before younger people are encouraged to purchase care products. It also identifies products that could be adapted and brought to market in the short term. It suggests that the first step, the quick wins, would be to adapt existing products such as pension annuities, health insurance and, as my noble friend Lady Gardner said, equity release, to name but a few. The recent announcements made in January by a number of leading firms confirm that the industry is beginning to develop its offer for the market. That is a positive development.
	The noble Baroness, Lady Greengross, and the noble Lord, Lord Hunt, asked about the timetable for the guidance. We will consult on the draft regulations and guidance for the April 2015 reforms in the spring of this year. We intend to consult on the draft regulations and guidance for the April 2016 reforms—that is, the cap on care costs—in the autumn of this year. We have committed to do this to make sure that they get the scrutiny they require and to give local authorities enough lead-in time properly to prepare for implementation.
	My noble friend Lady Brinton asked how people could obtain information and advice about the adequacy of the products they were being offered. There is a separation of roles here. It should be the role of government to raise the levels of awareness of how care funding works and encourage people to plan and
	prepare—I have already talked about that—but it should not be for government to recommend or give a gold seal to any financial product. Advice is regulated precisely because whether something works or is appropriate is down to individual circumstances. That is why the noble Lord, Lord Lipsey, emphasised the point around the expertise of SOLLA representatives, for example.
	The noble Baroness, Lady Greengross, suggested that the eligibility criteria for deferred payments should be national. Eligibility criteria for deferred payments will be in national regulations to ensure that there is protection for those people who face having to sell their homes in their lifetime to pay for care—that is the minimum offer. Local authorities, however, will have discretion to be more generous than the minimum offer, and we will consult on all the draft regulations and guidance that are to come in next year, as I have mentioned, in the spring of this year.
	The noble Lord, Lord Hunt, returned us to the issue of the cap on care costs and suggested that, in reality, people would find themselves paying more. I would not seek to argue with the points that he and the noble Lord, Lord Lipsey, made. It is a difficult issue. We want to extend state support for social care to tens of thousands of people who get little or nothing under the current system and the Care Bill establishes a legal framework to enable this. We would like to be able to set a lower cap, which may well be possible in the future, but we also need to live within the broader economic constraints on public spending that we currently face. It is a matter of finding that balance at the current time. We have committed to reviewing this question every five years to ensure that we continue to get that balance right.
	I am optimistic that the financial services industry will step up to the plate and play a role in helping people to plan for their care costs. We will encourage it to do so. Our continuing work with the industry is a key pillar in our efforts to support individuals in the new partnership recommended by the Dilnot commission. There is still a long way to travel but the first stirrings of growth are beginning to show.

House adjourned at 8.23 pm.